SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 1)*
Candlewood Hotel Company, Inc.
(Name of Issuer)
Common Stock (par value $.01 per share)
(Title of Class of Securities)
13741M 108
(CUSIP Number)
Desai Capital Management, Inc.
540 Madison Avenue
New York, New York 10022
Attention: Mr. Frank Pados
Tel. No. (212) 838-9191
(Name, Address and Telephone Number of
Person Authorized to Receive Notices
and Communications)
July 13, 1998
(Date of Event which Requires Filing of
this Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D, and is
filing this statement because of Rule 13d-1(b)(3) or (4), check the following
box [ ].
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
Page 1 of 24 Pages
<PAGE>
SCHEDULE 13D
CUSIP NO. 13741M 108 Page 2 of 24 Pages
----------
1 NAME OF REPORTING PERSON
The Mutual Life Insurance Company of New York EIN: 13-1632487
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [X]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
State of New York
NUMBER OF 7 SOLE VOTING POWER
SHARES 681,894
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY -0-
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 681,894
PERSON 10 SHARED DISPOSITIVE POWER
WITH -0-
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
681,894
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
Not Applicable
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.0%
14 TYPE OF REPORTING PERSON
PN
<PAGE>
SCHEDULE 13D
CUSIP NO. 13741M 108 Page 3 of 24 Pages
----------
1 NAME OF REPORTING PERSON
Pecks Management Partners Ltd. EIN: 11-3015963
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [X]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
State of New York
NUMBER OF 7 SOLE VOTING POWER
SHARES 1,631,620
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY -0-
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 1,631,620
PERSON 10 SHARED DISPOSITIVE POWER
WITH -0-
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,631,620
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
Not Applicable
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
15.3%
14 TYPE OF REPORTING PERSON
IA
<PAGE>
SCHEDULE 13D
CUSIP NO. 13741M 108 Page 4 of 24 Pages
----------
1 NAME OF REPORTING PERSON
Advance Capital Offshore Partners, L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [X]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
Cayman Islands
NUMBER OF 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 137,500
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON 10 SHARED DISPOSITIVE POWER
WITH 137,500
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
137,500
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
Not Applicable
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.5%
14 TYPE OF REPORTING PERSON
PN
<PAGE>
SCHEDULE 13D
CUSIP NO. 13741M 108 Page 5 of 24 Pages
----------
1 NAME OF REPORTING PERSON
Advance Capital Partners, L.P. EIN: 13-3861661
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [X]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
State of Delaware
NUMBER OF 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 431,130
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON 10 SHARED DISPOSITIVE POWER
WITH 431,130
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
431,130
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
Not Applicable
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
4.5%
14 TYPE OF REPORTING PERSON
PN
<PAGE>
SCHEDULE 13D
CUSIP NO. 13741M 108 Page 6 of 24 Pages
----------
1 NAME OF REPORTING PERSON
Advance Capital Associates, L.P. EIN: 13-3861660
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [X]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
State of Delaware
NUMBER OF 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 586,630
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON 10 SHARED DISPOSITIVE POWER
WITH 586,630
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
586,630
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
Not Applicable
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6%
14 TYPE OF REPORTING PERSON
PN
<PAGE>
SCHEDULE 13D
CUSIP NO. 13741M 108 Page 7 of 24 Pages
----------
1 NAME OF REPORTING PERSON
Advance Capital Offshore Associates, LDC
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [X]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
Cayman Islands
NUMBER OF 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 137,500
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON 10 SHARED DISPOSITIVE POWER
WITH 137,500
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
137,500
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
Not Applicable
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.5%
14 TYPE OF REPORTING PERSON
OO
<PAGE>
SCHEDULE 13D
CUSIP NO. 13741M 108 Page 8 of 24 Pages
----------
1 NAME OF REPORTING PERSON
Advance Capital Management, LLC
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [X]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
State of Delaware
NUMBER OF 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 568,630
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON 10 SHARED DISPOSITIVE POWER
WITH 568,630
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
568,630
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
Not Applicable
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6%
14 TYPE OF REPORTING PERSON
OO
<PAGE>
SCHEDULE 13D
CUSIP NO. 13741M 108 Page 9 of 24 Pages
----------
1 NAME OF REPORTING PERSON
Private Equity Investors III, L.P. EIN: 13-3946904
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [X]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
AF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
State of New York
NUMBER OF 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 1,727,578
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON 10 SHARED DISPOSITIVE POWER
WITH 1,727,578
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,727,578, but 3,455,156 if considered together with Equity-Linked
Investors-II
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
Not Applicable
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
16.0%, but approximately 32% if considered together with Equity-Linked
Investors-II
14 TYPE OF REPORTING PERSON
PN
<PAGE>
SCHEDULE 13D
CUSIP NO. 13741M 108 Page 10 of 24 Pages
----------
1 NAME OF REPORTING PERSON
Equity-Linked Investors-II
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [X]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
AF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
State of New York
NUMBER OF 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 1,727,578
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON 10 SHARED DISPOSITIVE POWER
WITH 1,727,578
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,727,578, but 3,455,156 if considered together with Private Equity
Investors III, L.P.
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
Not Applicable
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
16.0%, but approximately 32.0% if considered together with Private
Equity Investors III, L.P.
14 TYPE OF REPORTING PERSON
PN
<PAGE>
SCHEDULE 13D
CUSIP NO. 13741M 108 Page 11 of 24 Pages
----------
1 NAME OF REPORTING PERSON
Rohit Mujilal Desai SS#: ###-##-####
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [X]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
AF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
United States
NUMBER OF 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 1,727,578
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON 10 SHARED DISPOSITIVE POWER
WITH 1,727,578
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,727,578
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
Not Applicable
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
32.0%
14 TYPE OF REPORTING PERSON
IN
<PAGE>
SCHEDULE 13D
CUSIP NO. 13741M 108 Page 12 of 24 Pages
----------
1 NAME OF REPORTING PERSON
Desai Capital Management Incorporated
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [X]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
AF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E)
6 CITIZENSHIP OR PLACE OR ORGANIZATION
New York
NUMBER OF 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 1,727,578
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON 10 SHARED DISPOSITIVE POWER
WITH 1,727,578
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,727,578
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
Not Applicable
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
32.0%
14 TYPE OF REPORTING PERSON
IA, CO
<PAGE>
Page 13 of 24
This Amendment No. 1 with respect to the Schedule 13D filed on May 29,
1998 (the "Statement"), relating to the common stock, par value $.01 per share,
of Candlewood Hotel Company, Inc., a Delaware corporation, hereby amends the
Statement in the following respects only. Unless otherwise indicated, all
capitalized terms shall have the same meaning as provided in the Statement.
Item 1. Security and Issuer.
Item 1 is hereby amended by the deletion of the first paragraph and the
insertion of the following in replacement thereof:
This statement relates to the common stock, par value $.01 per
share (the "Common Stock"), of Candlewood Hotel Company, Inc., a
Delaware corporation (the "Issuer"), beneficially owned by the
Reporting Persons (as defined below), through their respective holdings
of (i) shares of Series A Cumulative Convertible Preferred Stock, par
value $.01 per share (the "Preferred Stock"), of the Issuer convertible
into Common Stock at the option of the holder, (ii) shares of Series B
Cumulative Convertible Preferred Stock, par value $.01 per share (the
"Series B Preferred Stock"), of the Issuer convertible into Common
Stock at the option of the holder and (iii) warrants ("Warrants")
exercisable for shares of Common Stock at the option of the holder. The
Issuer's principal executive offices are located at Lakepoint Office
Park 9342 East Central, Wichita, Kansas 67206-2555.
Item 3. Source and Amount of Funds or Other Consideration.
Item 3 is hereby amended by the deletion of the first paragraph and the
insertion of the following in replacement thereof:
The shares of Common Stock of the Issuer are beneficially
owned by the Reporting Persons through their respective purchases
pursuant to (i) the Stock Purchase Agreement, dated as of September 22,
1997, among the Issuer, the Reporting Persons and certain other
purchasers of the shares of Preferred Stock of the Issuer and (ii) the
Securities Purchase Agreement, dated as of June 30, 1998, among the
Issuer, the Reporting Persons and certain other purchasers of shares of
Series B Preferred Stock and Warrants.
Item 3 is hereby further amended by the insertion of the following
after the last paragraph thereof:
7. MONY acquired 3,000 shares of Series B Preferred Stock and
24,000 Warrants on July 13, 1998 for a purchase price of $3,000,000.
MONY used its general account assets in the amount of $3,000,000 to
finance this purchase.
8. PECKS acquired 7,900 shares of Series B Preferred Stock and
63,190 Warrants on July 13, 1998 for a purchase price of $7,900,000.
PECKS used its investment funds in the amount of $7,900,000 to finance
this purchase.
<PAGE>
Page 14 of 24
9. Advance Offshore I acquired 477 shares of Series B
Preferred Stock and 3,816 Warrants on July 13, 1998 for a purchase
price of $477,000. Advance Capital I acquired 1,523 shares of Series B
Preferred Stock and 12,184 Warrants on July 13, 1998 for a purchase
price of $1,523,000. Funds in the aggregate amount of $2,000,000
necessary for the purchases were provided by capital contributions of
limited partners and general partners of Advance Offshore I and Advance
Capital I, respectively.
10. PEI-III acquired 11,400 shares of Series B Preferred Stock
and 91,200 Warrants on July 13, 1998 for a purchase price of
$11,400,000 and 600 shares of Series B Preferred Stock and 4,800
Warrants on August 3, 1998 for a purchase price of $600,000. ELI-II
acquired 11,400 shares of Series B Preferred Stock and 91,200 Warrants
on July 13, 1998 for a purchase price of $11,400,000 and 600 shares of
Series B Preferred Stock and 4,800 Warrants on August 3, 1998 for a
purchase price of $600,000. In making these purchases, PEI-III and
ELI-II used working capital from their respective operating accounts,
which are funded by capital contributions from the limited partners of
PEI-III and ELI-II and gains and proceeds from PEI-III's and ELI- II's
investment portfolios.
Item 4. Purpose of Transaction.
Item 4 is hereby amended by the deletion of the first paragraph and the
insertion of the following in replacement thereof:
The Reporting Persons hold shares of Preferred Stock, shares
of Series B Preferred Stock and Warrants for the purpose of investment,
in view of capital appreciation of securities.
Item 4 is hereby further amended by the insertion of the following
after the third paragraph thereof:
In connection with the issuance of shares of Series B
Preferred Stock and Warrants, the following changes resulted:
(a) The maximum number of the directors of the Issuer
was increased from ten (10) to twelve (12) directors.
(b) The Board of Directors authorized the issuance of
42,000 shares of Preferred Stock and 336,000 Warrants and
reserved 4,757,053 shares of Common Stock to be issued upon
conversion of the Series B Preferred Stock and exercise of
such Warrants or such lesser or greater number of shares of
Common Stock as the then outstanding shares of Series B
Preferred Stock are convertible into and Warrants are
exercisable for.
(c) The Issuer's charter and bylaws were amended so
as to reflect changes in capitalization and in the structure
of the Board of Directors of the Issuer.
<PAGE>
Page 15 of 24
Item 5. Interest in the Securities of the Issuer.
Item 5 is hereby amended by the deletion of the first two paragraphs
and the paragraphs numbered 1, 2, 3 and 4 of the response to Item 5(a), (b) and
the replacement thereof by the following:
Item 5(a), (b).
The Reporting Persons together beneficially own an aggregate
of 7,416,247 shares of Common Stock or approximately 45% of the issued
and outstanding shares of Common Stock through holdings of an aggregate
of (i) 30,750 shares of Preferred Stock of the Issuer (preferences and
special rights of Preferred Stock are listed in the Certificate of
Designation, Preferences and Relative, Participating, Optional and
Other Special Rights of Preferred Stock and Qualifications, Limitations
and Restrictions Thereof (the "Certificate of Designation") attached
hereto as Exhibit D, which is hereby incorporated by reference in its
entirety), (ii) 36,900 shares of Series B Preferred Stock of the Issuer
(preferences and special rights of Series B Preferred Stock are listed
in the Certificate of Designation, Preferences and Relative,
Participating, Optional and Other Special Rights of Preferred Stock and
Qualifications, Limitations and Restrictions Thereof (the "Series B
Certificate of Designation") attached hereto as Exhibit F, which is
hereby incorporated by reference in its entirety), and (iii) 295,200
Warrants (the rights of the Warrants are listed in the Form of Warrant
attached hereto as Exhibit G, which is hereby incorporated by reference
in its entirety). Pursuant to the Certificate of Designation, holders
of the shares of Preferred Stock are entitled, upon the failure of the
Issuer to redeem the shares of Preferred Stock in accordance with the
mandatory redemption provisions of the Certificate of Designation, to
receive warrants to purchase additional shares of Common Stock of the
Issuer upon terms and conditions stated in the Form of Warrant attached
hereto as Exhibit E, which is hereby incorporated by reference in its
entirety. Pursuant to the Series B Certificate of Designation, holders
of shares of Series B Preferred Stock are entitled, upon the failure of
the Issuer to redeem the shares of Series B Preferred Stock in
accordance with the mandatory redemption provisions of the Series B
Certificate of Designation, to receive warrants to purchase additional
shares of Common Stock upon terms and conditions stated in the Form of
Penny Warrant attached hereto as Exhibit H, which is hereby
incorporated by reference in its entirety. The Reporting Persons,
therefore, may be entitled to receive warrants to purchase additional
shares of Common Stock of the Issuer. According to the information
provided by the Issuer to the Reporting Persons, the Issuer presently
has 9,025,000 shares of Common Stock issued and outstanding. The
Preferred Stock and the Series B Preferred Stock votes on an "as
converted" basis on all matters calling for a vote of Common Stock
shareholders.
If the Issuer grants, issues or sells any rights or options to
purchase stock, warrants or other property ("Purchase Rights") pro rata
to the holders of Common Stock, the Reporting Persons are entitled,
pursuant to the Certificate of Designation and the Series B Certificate
of Designation, to a right, at their option, either to have the
conversion price of Preferred Stock or Series B Preferred Stock, as the
case may be, adjusted, or to acquire such
<PAGE>
Page 16 of 24
Purchase Rights as they could have acquired if they held the number of
shares of Common Stock issuable upon conversion of the shares of
Preferred Stock and Series B Preferred Stock held by them immediately
prior to the time the issuer granted, issued or sold such Purchase
Rights.
1. MONY. MONY beneficially owns 681,894 shares of Common Stock
of the Issuer through its holdings of 3,250 shares of Preferred Stock,
3,000 shares of Series B Preferred Stock and 24,000 Warrants. If MONY
were to convert all its Preferred Stock, Series B Preferred Stock and
Warrants into shares of Common Stock, it would own approximately 7.0%
of the issued and outstanding shares of Common Stock. To the best
knowledge of MONY, no person other than MONY has the power to vote or
to direct the vote and to dispose or to direct the disposition of any
of the securities beneficially owned by MONY.
2. PECKS. PECKS beneficially owns 1,631,620 shares of Common
Stock of the Issuer through its holdings of 7,900 shares of Preferred
Stock 7,900 shares of Series B Preferred Stock and 63,200 Warrants. If
PECKS were to convert all its Preferred Stock, Series B Preferred Stock
and Warrants into shares of Common Stock, it would own approximately
15.3% of the issued and outstanding shares of Common Stock. To the best
knowledge of PECKS, no person other than PECKS has the power to vote or
to direct the vote and to dispose or to direct the disposition of any
of the securities beneficially owned by PECKS.
3. Advance Capital. Advance Offshore I beneficially owns
137,500 shares of Common Stock of the Issuer through its holdings of
793 shares of Preferred Stock, 477 Shares of Series B Preferred Stock
and 3,816 Warrants. If Advance Offshore I were to convert all its
Preferred Stock, Series B Preferred Stock and Warrants into shares of
Common Stock, it would own approximately 1.5% of the issued and
outstanding shares of Common Stock. Advance Capital I beneficially owns
431,130 shares of Common Stock of the Issuer through its holdings of
2,457 shares of Preferred Stock, 1,523 shares of Series B Preferred
Stock and 12,184 Warrants. If Advance Capital I were to convert all its
Preferred Stock, Series B Preferred Stock and Warrants into shares of
Common Stock, it would own approximately 4.5% of the issued and
outstanding shares of Common Stock. Advance Offshore I shares the power
to vote or to direct the vote and to dispose or to direct the
disposition of shares of Common Stock which it may be deemed to
beneficially own with Advance Offshore II, its general partner. Advance
Capital II, the majority shareholder of Advance Offshore II and the
general partner of Advance Capital I, has shared power to vote or to
direct the vote and to dispose or to direct the disposition of shares
of Common Stock which Advance Offshore I and Advance Capital I may be
deemed to beneficially own. Advance Capital III, the managing general
partner of Advance Capital II, has shared power to vote or to direct
the vote and to dispose or to direct the disposition of shares of
Common Stock which Advance Offshore I and Advance Capital I may be
deemed to beneficially own.
4. DESAI. PEI-III beneficially owns 1,727,578 shares of Common
Stock of the Issuer through its holdings of 3,500 shares of Preferred
Stock,
<PAGE>
Page 17 of 24
12,000 shares of Series B Preferred Stock and 96,000 Warrants. If
PEI-III were to convert all its Preferred Stock, Series B Preferred
Stock and Warrants into shares of Common Stock, it would own
approximately 16.0% of the issued and outstanding shares of Common
Stock. The power to vote or to direct the vote and to dispose of or to
direct the disposition of shares of Common Stock held by PEI-III is
vested in its general partner RMDA-III but such decisions (and similar
decisions with respect to the rest of PEI-III's investment portfolio)
may also be made by DCMI under an investment and advisory agreement
between PEI-III and DCMI.
ELI-II beneficially owns 1,727,578 shares of Common Stock of
the Issuer through its holdings of 3,500 shares of Preferred Stock,
12,000 shares of Series B Preferred Stock and 96,000 Warrants. If
ELI-II were to convert all its Preferred Stock, Series B Preferred
Stock and Warrants into shares of Common Stock, it would own
approximately 16.0% of the issued and outstanding shares of Common
Stock. The power to vote or to direct the vote and to dispose of or to
direct the disposition of shares of Common Stock held by ELI-II is
vested in its general partner RMDA-II but such decisions (and similar
decisions with respect to the rest of ELI-II's investment portfolio)
may also be made by DCMI under an investment and advisory agreement
between ELI-II and DCMI.
Desai is the managing general partner of RMDA-II, managing
member of RMDA-III and the sole stockholder, chairman of the board of
directors, president and treasurer of DCMI. Katherine B. Desai is the
secretary and a director of DCMI, a general partner of RMDA-II and
trustee of the Rohit M. Desai Family Trust. The Rohit M. Desai Family
Trust is a general partner of RMDA-II. Joseph F. McDonald is the
trustee of the Rohit M. Desai Family Trust. Frank J. Pados, Jr. is an
executive vice president of DCMI. Damon H. Ball and Thomas P. Larsen
are senior vice presidents of DCMI. Timothy R. Kelleher, Andre J.
McSherry and Tom W. Perlmutter are vice presidents of DCMI. DCMI and
Desai may each be deemed to share the power to vote or to direct the
vote and may be deemed to share the power to dispose or to direct the
disposition with respect to other securities held by PEI-III and ELI-
II. Pursuant to Rule 13d under the Securities Exchange Act of 1934,
DCMI, the Rohit M. Desai Family Trust, Joseph F. McDonald and each
person identified and listed in Schedule V hereby declare that the
filing of this Schedule 13D shall not be construed as an admission that
any person other than PEI-III and ELI-II is the beneficial owner of any
securities covered by this Schedule 13D, or that PEI-III and ELI-II is
the beneficial owner of any securities held by the other.
Item 5 is hereby further amended by the deletion of the responses to
Item 5(c) and 5(d) and the replacement thereof by the following:
Item 5(c).
The Reporting Persons have not effected any transactions in
the Preferred Stock, Series B Preferred Stock, Warrants or Common Stock
of the Issuer during the past sixty days.
<PAGE>
Page 18 of 24
Item 5(d).
No other person is known to have the right to receive or the
power to direct the receipt of dividends from, or the proceeds from the
sale of, the shares of the Common Stock into which the shares of the
Preferred Stock shares of Series B Preferred Stock and Warrants
beneficially owned by the Reporting Persons are convertible or
exercisable for.
Item 6. Contracts, Arrangements, Undertakings or Relationships with
Respect to Securities of the Issuer.
Item 6 is hereby amended by the deletion of the first two paragraphs
and the replacement thereof by the following:
The Reporting Persons are parties to the Amended and Restated
Stockholders Agreement, dated July 10, 1998 (the "Amended and Restated
Stockholders Agreement"), among the Issuer, Doubletree Corporation, the
Warren D. Fix Family Partnership, L.P., Jack P. DeBoer (on behalf of
himself and as representative of the Alexander John DeBoer Trust and
the Christopher Scott DeBoer Trust), and each of the other parties
signatory thereto. Pursuant to the Amended and Restated Stockholders
Agreement, the Reporting Persons agreed to vote their shares for
certain nominees for election to the Board of Directors. One nominee is
to be designated by PECKS. The current designee of PECKS is Mr. Robert
Cresci. One nominee is to be designated by PEI-III and ELI-II, jointly.
The current designee of PEI-III and ELI-II is Mr. Frank Pados. In
addition, the holders of a majority of shares of Series B Preferred
Stock have the right to nominate one member of the Board of Directors.
PEI-III, as the holder of a majority of the outstanding shares of
Series B Preferred Stock, is able to control the selection of the
director nominated by the holders of shares of Series B Preferred
Stock. The Amended and Restated Stockholders Agreement supersedes in
its entirety the Stockholders Agreement entered into in connection with
the issuance of the Preferred Stock. The Amended and Restated
Stockholders Agreement is attached hereto as Exhibit I and is hereby
incorporated by reference in its entirety.
The Reporting Persons are parties to the Amended and Restated
Registration Rights Agreement, dated as of July 10, 1998 (the "Amended
and Restated Registration Rights Agreement"), among the Issuer,
Doubletree Corporation, the Warren D. Fix Family Partnership, L.P.,
Jack P. DeBoer (on behalf of himself and as representative of the
Alexander John DeBoer Trust and the Christopher Scott DeBoer Trust),
and each of the other parties signatory thereto. Pursuant to the
Registration Rights Agreement, under the circumstances and subject to
the limitations specified therein, the Issuer has the obligation to
register for sale under the Securities Act of 1933, as amended, certain
shares of Common Stock held by the parties thereto. The Amended and
Restated Registration Rights Agreement supersedes in its entirety the
Registration Rights Agreement entered into in connection with the
issuance of the Preferred Stock. The Amended and Restated Registration
Rights
<PAGE>
Page 19 of 24
Agreement is attached hereto as Exhibit J and is hereby incorporated by
reference in its entirety.
Item 7. Material to Be Filed as Exhibits.
Item 7 is hereby amended by the insertion of the following:
Exhibit F: Certificate of Designation, Preferences and
Relative, Participating, Optional and Other Special
Rights of Preferred Stock and Qualifications
Limitations and Restrictions Thereof of Series B
Cumulative Convertible Preferred Stock of the Issuer
certified by the Office of the Secretary of State of
the State of Delaware on July 13, 1998.
Exhibit G: Form of Warrant.
Exhibit H: Form of Penny Warrant.
Exhibit I: Stockholders Agreement, dated as of July 10, 1998,
among the Issuer, Doubletree Corporation, the Warren
D. Fix Family Partnership, L.P., Jack P. DeBoer (on
behalf of himself and as representative of the
Alexander John DeBoer Trust and the Christopher Scott
DeBoer Trust), and each of the other parties
signatory thereto.
Exhibit J: Registration Rights Agreement, dated as of July
10, 1998, among the Issuer, Doubletree Corporation,
the Warren D. Fix Family Partnership, L.P., Jack P.
DeBoer (on behalf of himself and as representative of
the Alexander John DeBoer Trust and the Christopher
Scott DeBoer Trust), and each of the other parties
signatory thereto.
<PAGE>
Page 20 of 24
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: August 24, 1998
J. ROMEO & CO., as nominee for The
Mutual Life Insurance Company of New
York
By: /s/ Peter Coccia
--------------------
Name: Peter Coccia
Title: Partner
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: August 24, 1998
PECKS MANAGEMENT PARTNERS LTD.
By: /s/ Robert J. Cresci
------------------------
Name: Robert J. Cresci
Title: Managing Director
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: August 24, 1998
ADVANCE CAPITAL PARTNERS, L.P.
By: Advance Capital Associates, L.P.
By: Advance Capital Management, LLC
By: /s/ Robert A. Bernstein
---------------------------
Name: Robert A. Bernstein
Title: Principal
<PAGE>
Page 21 of 24
ADVANCE CAPITAL OFFSHORE
PARTNERS, L.P.
By: Advance Capital Offshore
Associates, LDC
By: Advance Capital Associates, L.P.
By: Advance Capital Management, LLC
By: /s/ Robert A. Bernstein
---------------------------
Name: Robert A. Bernstein
Title: Principal
ADVANCE CAPITAL OFFSHORE
ASSOCIATES, LDC
By: Advance Capital Associates, L.P.
By: Advance Capital Management, LLC
By: /s/ Robert A. Bernstein
---------------------------
Name: Robert A. Bernstein
Title: Principal
ADVANCE CAPITAL ASSOCIATES, L.P.
By: Advance Capital Management, LLC
By: /s/ Robert A. Bernstein
---------------------------
Name: Robert A. Bernstein
Title: Principal
ADVANCE CAPITAL MANAGEMENT LLC
By: /s/ Robert A. Bernstein
---------------------------
Name: Robert A. Bernstein
Title: Principal
<PAGE>
Page 22 of 24
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: August 24, 1998
PRIVATE EQUITY INVESTORS III,
L.P.
By: Rohit M. Desai Associates III,
LLC General Partner
By: /s/ Rohit M. Desai
----------------------
Name: Rohit M. Desai
Title: Managing Member
EQUITY-LINKED INVESTORS-II
By: Rohit M. Desai Associates-II
General Partner
By: /s/ Rohit M. Desai
----------------------
Name: Rohit M. Desai
Title: Managing General Partner
DESAI CAPITAL MANAGEMENT
INCORPORATED
By: /s/ Rohit M. Desai
----------------------
Name: Rohit M. Desai
Title: President
/s/ Rohit M. Desai
------------------
Rohit M. Desai
<PAGE>
Page 23 of 24
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: August 24, 1998
LNR CANDLEWOOD HOLDINGS, INC.
By: /s/ Shelly Rubin
--------------------
Name: Shelly Rubin
Title: Vice President
LEISURE COLONY MANAGEMENT CORP.
By: /s/ Shelly Rubin
--------------------
Name: Shelly Rubin
Title: Vice President
LNR PROPERTY CORPORATION
By: /s/ Shelly Rubin
--------------------
Name: Shelly Rubin
Title: Vice President
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: August 24, 1998
ALLIED CAPITAL CORPORATION
By: /s/ Kelly A. Anderson
-------------------------
Name: Kelly A. Anderson
Title: Principal and Treasurer
<PAGE>
Page 24 of 24
INDEX TO EXHIBITS
Exhibit Description Page Number
------- ----------- -----------
Exhibit F Certificate of Designation, Preferences and
Relative, Participating, Optional and Other
Special Rights of Preferred Stock and
Qualifications Limitations and Restrictions
Thereof of Series B Cumulative
Convertible Preferred Stock of the Issuer
certified by the Office of the Secretary of
State of the State of Delaware on July 13,
1998.
Exhibit G Form of Warrant
Exhibit H Form of Penny Warrant
Exhibit I Stockholders Agreement, dated as of
July 10, 1998, among the Issuer, Doubletree
Corporation, the Warren D. Fix Family
Partnership, L.P., Jack P. DeBoer (on behalf
of himself and as representative of the
Alexander John DeBoer Trust and the
Christopher Scott DeBoer Trust), and each of
the other parties signatory thereto.
Exhibit J Registration Rights Agreement, dated as of
July 10, 1998, among the Issuer,
Doubletree Corporation, the Warren D.
Fix Family Partnership, L.P., Jack P.
DeBoer (on behalf of himself and as
representative of the Alexander John
DeBoer Trust and the Christopher Scott
DeBoer Trust), and each of the other
parties signatory thereto.
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED STOCK
AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
OF
SERIES B CUMULATIVE CONVERTIBLE
PREFERRED STOCK
OF
CANDLEWOOD HOTEL COMPANY, INC.
----------------------------------------------------------
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
----------------------------------------------------------
Candlewood Hotel Company, Inc., a Delaware corporation (the
"Corporation"), certifies that pursuant to the authority contained in Article
Fourth of its Restated Certificate of Incorporation (the "Certificate of
Incorporation") and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, the Board of Directors of the
Corporation at a telephone meeting called and held on June 30, 1998 adopted the
following resolution, which resolution remains in full force and effect on the
date hereof;
RESOLVED, that there is hereby established a series of authorized
preferred stock having a par value of $.01 per share, which series shall be
designated as "Series B Cumulative Convertible Preferred Stock" (the
"Series B Preferred Stock"), shall consist of 42,000 shares and shall have
the following voting powers, preferences and relative, participating,
optional and other special rights, and qualifications, limitations and
restrictions thereof as follows:
(i) Designation and Amount. The designation of the series of the
Preferred Stock shall be "Series B Cumulative Convertible Preferred Stock," par
value $.01 per share (the "Series B Preferred Stock"). The number of shares of
Series B Preferred Stock shall be 42,000. The Series B Preferred Stock shall be
assigned a stated value of $1,000 per share (the "Stated Value").
(ii) Dividends. (a) Rate, etc. The holders of shares of Series B
Preferred Stock as of the related Dividend Record Date (as defined below) shall
be entitled to receive, when and if declared by the Board of Directors out of
funds
<PAGE>
2
legally available therefor, dividends from the date of issue thereof, at an
annual rate on the Stated Value equal to 7.5% (the "Dividend Rate"), calculated
on the basis of a 360-day year consisting of twelve 30-day months, accruing and
payable quarterly, in arrears, on the last day in August, November, February and
May of each year (each a "Dividend Payment Date"), commencing on August 31, 1998
until such time as the Series B Preferred Stock is redeemed or retired in full;
provided, that, if pursuant to paragraph (vi)(a) the Dividend Rate is increased
to 12.0% per annum, from and after the date of such increase the Dividend Rate
shall be 12.0% per annum. Upon conversion of any shares of Series B Preferred
Stock, dividends shall be paid as provided in clause (vi); provided, however,
that with respect to such first Dividend Payment Date, the holders of shares of
Series B Preferred Stock shall be entitled to receive, when and if declared by
the Board of Directors out of funds legally available therefor, a cumulative
cash dividend in respect of each share of Series B Preferred Stock in the amount
of (i) $18.75 multiplied by (ii) a fraction equal to (A) the number of days from
(and including) the date of issue thereof to (but excluding) such Dividend
Payment Date divided by (B) 90. If any Dividend Payment Date occurs on a day
that is not a Business Day, any accrued dividends otherwise payable on such
Dividend Payment Date shall be paid on the next succeeding Business Day with the
same effect as though made on such Dividend Payment Date. The term "Business
Day" shall mean a day other than a Saturday or Sunday, any federal holiday or
any day on which banks in the City of New York are closed. Such dividends shall
be payable in cash. Such dividends shall accrue and be cumulative with respect
to each share from the date of original issuance and shall compound on each
Dividend Payment Date, beginning August 31, 1998, with respect to any accrued
dividends not paid on any such Dividend Payment Date, whether or not earned or
declared. Except as otherwise required by law, the "Dividend Record Date" with
respect to the next succeeding Dividend Payment Date shall be the date 10
Business Days prior to such Dividend Payment Date.
(b) Rank, etc. Unless full dividends, if applicable, on all
outstanding shares of Series B Preferred Stock which have previously become due
and payable, have been paid or are contemporaneously declared and paid (or
declared and a sum sufficient for the payment thereof is set apart for such
payment), the Corporation shall not (1) declare or pay any dividend on (A) the
Series B Preferred Stock, except if such dividend is allocated pro rata on a
share-by-share basis among all shares of Series B Preferred Stock at that time
outstanding, (B) the Series A Preferred Stock (as defined below) or any other
class of Parity Stock (as defined below), except if such dividend is allocated
pro rata on a share-by-share basis among all shares of Series B Preferred Stock,
Series A Preferred Stock and any other class of Parity Stock at that time
outstanding taken together as a class, (C) the common stock, $.01 par value per
share (the "Common Stock"), of the Corporation or (D) on any other class or
series of stock ranking junior to the Series B Preferred Stock as to dividends
or upon liquidation (the Common Stock and any such junior class or series being
the "Junior Stock") or make any payment on account of, or set apart money for, a
sinking or other analogous fund for the purchase, redemption or other
<PAGE>
3
retirement of, any Junior Stock or make any distribution in respect thereof,
either directly or indirectly and whether in cash or property or in obligations
or shares of the Corporation (other than in shares of Junior Stock) or (2)
purchase any shares of Series B Preferred Stock (except for consideration
payable in Junior Stock) or redeem fewer than all of the shares of Series B
Preferred Stock then outstanding.
(iii) Liquidation. (a) Preference Upon Liquidation,
Dissolution or Winding Up. In the event of any liquidation, dissolution or
winding up of the affairs of the Corporation (any or all of such events, a
"liquidation"), whether voluntary or involuntary, subject to the prior
preferences and other rights of any Senior Stock (as defined below), if any, as
to liquidation preferences, the holders of shares of Series B Preferred Stock
then outstanding shall be entitled pari passu as if members of a single class of
securities with the holders of any Parity Stock (as defined below), if any, to
be paid out of the assets of the Corporation before any payment shall be made to
the holders of the Junior Stock, an amount equal to the Stated Value plus any
accrued but unpaid dividends (the "Liquidation Amount"). Except as provided in
this paragraph, holders of Series B Preferred Stock shall not be entitled to any
distribution in the event of liquidation, dissolution or winding up of the
affairs of the Corporation. The term "Senior Stock" shall mean any class or
series of stock of the Corporation authorized after the date of issuance of the
Series B Preferred Stock in accordance with clause (v)(b) hereof ranking senior
to the Series B Preferred Stock in respect of the right to receive dividends or
the right to participate in any distribution upon liquidation and the term
"Parity Stock" shall mean the Series A Cumulative Convertible Preferred Stock,
par value $.01 per share (the "Series A Preferred Stock"), of the Corporation
and any class or series of stock of the Corporation authorized after the date of
issuance of the Series B Preferred Stock in accordance with clause (v)(b) hereof
ranking on a parity with the Series B Preferred Stock in respect of the right to
receive dividends or the right to participate in any distribution upon
liquidation.
(b) Preference on Merger, Consolidation or Sale of Assets.
Alternatively, in the event of a liquidation pursuant to clause (iii)(e) of this
Certificate of Designation, a holder of shares of Series B Preferred Stock may
elect to convert any or all of such holder's shares of Series B Preferred Stock
into shares of Common Stock in accordance with clause (vi) of this Certificate
of Designation, in which event the holders electing to convert shall be entitled
to receive, together with the other holders of shares of Common Stock, pro rata
based on the number of shares of Common Stock then outstanding and the number of
shares of Common Stock into which the Series B Preferred Stock shall have been
converted pursuant to such election, the remaining cash and/or other property
distributable to holders of Common Stock if, as and when such remaining cash
and/or other properties is distributed by the Corporation.
(c) Insufficient Assets. If, upon any liquidation of the
Corporation, the assets of the Corporation are insufficient to pay the holders
of shares
<PAGE>
4
of the Series B Preferred Stock and any Parity Stock, if any, then outstanding
the full amount to which they shall be entitled, such assets shall be
distributed to each holder of the Series B Preferred Stock and Parity Stock, if
any, pro rata based on the number of shares of Series B Preferred Stock and
Parity Stock, if any, held by each.
(d) Rights of Other Holders. In the event of any liquidation,
after payment shall have been made to the holders of the Series B Preferred
Stock and Parity Stock, if any, of all preferential amounts to which they shall
be entitled, the holders of shares of Junior Stock and other capital stock of
the Corporation shall receive such amounts as to which they are entitled by the
terms thereof.
(e) Consolidation, Merger or Sale of Assets. A consolidation
or merger of the Corporation with or into any other corporation (excluding a
merger in which the Corporation is the surviving entity or merger into a
wholly-owned subsidiary), or a sale or transfer of all or substantially all of
the Corporation's assets for cash or securities shall be considered a
liquidation within the meaning of this clause (iii). Nothing contained in this
paragraph (iii)(e) shall affect the rights of any holder of shares of Series B
Preferred Stock under paragraph (iv)(b) hereof.
(iv) Redemption. (a) (i) Optional Redemption. The Series B Preferred
Stock shall be subject to redemption, at the option of the Corporation, in whole
or from time to time in part, at any time subsequent to September 30, 1999 at a
per share redemption price equal to 200% of the Stated Value plus accrued but
unpaid dividends to the date of such redemption, payable in cash or out of funds
legally available therefor (an "Optional Redemption").
(ii) Mandatory Redemption. All outstanding shares of
Series B Preferred Stock shall be redeemed by the Corporation on September 30,
2004 (the "Mandatory Redemption Date"), at a per share redemption price equal to
the Liquidation Amount, payable in cash out of funds legally available therefor
(the "Mandatory Redemption").
(b) Change of Control. Upon the occurrence of a Change of
Control Event (as hereafter defined), the Corporation shall offer to redeem all
outstanding shares of Series B Preferred Stock for a price per share equal to
the greater of (i) 175% of the Stated Value or (ii) the Liquidation Amount,
payable in cash. A "Change of Control Event" shall mean (x) the acquisition by
any Person or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) (other than a group comprised entirely of the Purchasers), of
beneficial ownership, direct or indirect, of securities of the Corporation
representing fifty percent (50%) or more of the combined voting power of the
Corporation's then outstanding equity securities or (y) the acquisition of the
Corporation, or all or substantially all of its assets, by, or the combination
of the Corporation or all or substantially all of its assets, with, another
Person, unless the acquiring or surviving Person shall be a corporation,
<PAGE>
5
limited liability company, partnership or other entity more than 50% of the
combined voting power of which corporation's then outstanding equity securities,
after such acquisition or combination, are owned, immediately after such
acquisition or combination, by the owners of more than 50% of the voting
securities of the Corporation immediately prior to such acquisition or
combination (the "Significant Transaction"); provided, however, that the
Corporation shall not be required to redeem any shares of Series B Preferred
Stock held by a member of a group described in clause (x) above (but including a
group comprised entirely of the Purchasers) in connection with a Change in
Control Event occurring prior to August 27, 1999. When used herein the term
"Person" shall mean and include an individual, a corporation, a limited
liability company, an association, a partnership, a trust or estate, a
government or any department or agency thereof.
(c) Notice of Redemption. The Corporation shall give each
holder of Series B Preferred Stock written notice of any Optional Redemption not
less than thirty (30) days nor more than forty-five (45) days prior to the
proposed redemption date, specifying such redemption date (each, an "Optional
Redemption Date"), the per share redemption price and the number of such
holder's shares to be redeemed on such date. The Corporation shall give each
holder of Series B Preferred Stock written notice (a "Notice of Anticipated
Change of Control Event") within twenty (20) days after the Corporation or any
of its executive officers or directors obtains knowledge that a Change of
Control Event is likely to occur and the material facts and circumstances of
such Change of Control Event; provided, that in the case of a proposed
Significant Transaction, the Corporation shall give each holder of Series B
Preferred Stock a Notice of Anticipated Change of Control not less than
forty-five (45) days prior to the date the Significant Transaction is scheduled
to occur. The Corporation shall give each holder of Series B Preferred Stock
written notice (a "Notice of Occurrence of Change of Control Event") within five
(5) days after the Corporation or any of its executive officers or directors
obtain knowledge of the occurrence of a Change of Control Event specifying that
a Change of Control Event has occurred, the material facts and circumstances of
such Change of Control Event, the redemption date, the per share redemption
price, and instructions that a holder of Series B Preferred Stock must follow in
order to have his shares redeemed. The redemption date for any Change of Control
Event (each a "Change of Control Redemption Date") shall be the twenty-fifth
date following such Change of Control Event; provided, that, if such redemption
date is not a Business Day, the redemption date shall be the first Business Day
thereafter. Upon receipt of a Notice of Change of Control Event, a holder of
shares of Series B Preferred Stock may, at his option, elect to have the
Corporation redeem all of such shares of Series B Preferred Stock by providing
written notice to the Corporation of such election not less than five (5) days
prior to the specified Change of Control Redemption Date. In the event some or
all of such shares of Preferred Stock are not tendered for redemption, the
holder of such shares not so tendered shall be deemed to have consented to the
redemption by the Corporation of any Junior Stock being prepaid, redeemed,
retired or exchanged pursuant to a Change of Control Event, notwithstanding any
approval rights of
<PAGE>
6
holders of Series B Preferred Stock pursuant to clause (v) hereof. If the
applicable redemption date is on or after a Dividend Record Date and on or
before the related Dividend Payment Date, the dividend payable shall be paid to
the holder in whose name the Series B Preferred Stock is registered at the close
of business on such record date. In the case of an Optional Redemption of less
than all shares of Series B Preferred Stock at the time outstanding, the shares
to be redeemed shall be selected pro rata, consistent with Delaware law.
(d) Failure to Redeem. (A) If, upon the Mandatory
Redemption Date, the Corporation does not redeem all outstanding shares of
Series B Preferred Stock at the per share price specified in clause (iv)(a)(ii),
the Corporation shall issue to each holder of Series B Preferred Stock on such
Redemption Date and on each three month anniversary thereof (each a "Warrant
Payment Date"), warrants to purchase twenty-five percent (25%) of the number of
shares of Common Stock (rounded to the nearest whole share) into which such
holder's outstanding shares of Series B Preferred Stock would be convertible on
such Warrant Payment Date at the then current Conversion Price. Such warrants
shall be immediately exercisable with respect to each share of Common Stock for
$.01 and shall be in the form of the warrant attached as Exhibit E to the
Securities Purchase Agreement, dated as of June 30, 1998 (the "Securities
Purchase Agreement"), among the Corporation and the parties thereto. (B) If,
upon the Change of Control Redemption Date, the Corporation does not redeem all
shares of Series B Preferred Stock tendered for redemption pursuant to clause
(iv)(c) hereof, the Conversion Price (as defined below) shall be reduced to the
lower of (1) the then applicable Conversion Price or (2) the Market Price (as
defined below) per share of Common Stock on the Redemption Date divided by 1.75;
provided, however, that under no circumstances shall the Conversion Price be
reduced to a level that is less than the par value of the Common Stock.
(e) Effect of Redemption. On the date established for
redemption pursuant to clause (iv) hereof, all rights in respect of the shares
of Series B Preferred Stock to be redeemed, except the right to receive the
applicable redemption price, plus accrued dividends, if any, to the date of
redemption, shall cease and terminate (unless default shall be made by the
Corporation in the payment of the applicable redemption price, plus accrued
dividends, if any, in which event such rights shall be exercisable until such
default is cured), and such shares shall no longer be deemed to be outstanding,
notwithstanding that any certificates representing such shares shall not have
been surrendered to the Corporation. All shares of Series B Preferred Stock
redeemed pursuant to this clause (iv) shall be retired and shall be restored to
the status of authorized and unissued shares of preferred stock, without
designation as to series or class and may thereafter be reissued, subject to
compliance with the terms hereof, as shares of any series of preferred stock
other than shares of Series B Preferred Stock.
(f) Insolvency of Corporation. If, upon the Mandatory
Redemption Date or any Change of Control Redemption Date, the payment of the
full
<PAGE>
7
amount of redemption payments due on such date would render the Corporation
insolvent (as determined in accordance with either the then applicable
definition in the United States Bankruptcy Code or then applicable definition of
any state fraudulent conveyance or fraudulent transfer statute), any liquidation
of the Corporation in connection with such redemption shall require the consent
of the holders of 66-2/3% of the Series B Preferred Stock and no other consent
of any holder of any other equity securities of the Corporation, except as
otherwise required by Delaware law, and in the event of such consent the
Corporation shall be liquidated and the assets of the Corporation distributed in
accordance with the provisions of clause (iii) of this Certificate of
Designation.
(g) Conversion Prior to Redemption. Anything to the contrary
in this clause (iv) of this Certificate of Designation notwithstanding, the
holders of Series B Preferred Stock shall have the right, exercisable at any
time prior to the date set for redemption thereof, to convert all or any part of
such Series B Preferred Stock into shares of Common Stock pursuant to clause
(vi) hereof.
(h) Funds for Redemption. No share of Series B Preferred Stock
may be redeemed except with funds legally available therefor.
(v) Voting Rights. (a) Voting as a Class with the Common Stock.
The holders of the Series B Preferred Stock shall be entitled to vote together
with the holders of shares of Common Stock and any other class or series of
capital stock entitled to vote with the Common Stock as a single class on all
matters to be voted upon by the Common Stock, and shall not have any additional
voting rights other than the rights specified below in this clause (v) or
otherwise required by law. Each holder of Series B Preferred Stock shall be
entitled to such number (rounded to the nearest whole number) of votes as such
holder would be entitled if such holder had converted the shares of Series B
Preferred Stock held by such holder into shares of Common Stock pursuant to
clause (vi) hereof immediately prior to such vote.
(b) Additional Capital Stock, etc. The Corporation shall not,
without the affirmative consent or approval of the holders of shares
representing 66-2/3% of the shares of Series B Preferred Stock then outstanding,
voting as a single class (such consent or approval to be given by written
consent in lieu of a meeting if allowable under the Corporation's Certificate of
Incorporation or by vote at a meeting called for such purpose for which notice
shall have been given to the holders of the Series B Preferred Stock): (i)
authorize the issuance of or issue any new, or increase the authorized number of
shares of any existing, class or series of capital stock of the Corporation
which would be senior or superior as to dividends or upon liquidation to the
Series B Preferred Stock, (ii) issue any shares of preferred stock authorized in
the Certificate of Incorporation or create any other class or series of stock
ranking on a parity with the Series B Preferred Stock as to dividends or upon
liquidation, (iii) authorize or issue shares of stock of any class or series or
any bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having rights to
<PAGE>
8
purchase, any shares of stock of the Corporation which would be senior or
superior to, or rank on a parity with, the Series B Preferred Stock as to
dividends or upon liquidation, (iv) reissue any shares of Series B Preferred
Stock that have been redeemed or purchased by the Corporation, (v) take any
action, including, causing any amendment, alteration or repeal of any of the
provisions of the Corporation's Certificate of Incorporation that may alter or
change the powers, preferences or special rights of (i) the shares of Series B
Preferred Stock so as to affect the holders thereof adversely, or (ii) shares of
Parity Stock, (vi) effect any redemption or repurchase of any Junior Stock other
than in connection with the cashless exercise of options, or upon the exercise
by the Corporation of its repurchase rights (up to a maximum of $250,000 in the
aggregate) as to Common Stock issued to employees of the Corporation upon a
termination of such employment, (vii) increase the number of members on the
Board of Directors (except by one, in connection with the election of the
President of the Company to the Board of Directors), (viii) file a voluntary
petition seeking liquidation, reorganization, arrangement or readjustment of its
debts, make an assignment for the benefit of creditors, permit an involuntary
petition seeking liquidation, reorganization, arrangement or readjustment of its
debts or seeking appointment of a receiver to remain unchallenged or otherwise
seek or permit remedies for insolvency or (ix) effect any redemption or
repurchase of any Parity Stock other than a redemption or repurchase which is
pro rata among the Series B Preferred Stock and all Parity Stock taken together
as a class. Notwithstanding any other provision in this Certificate of
Designation, (1) upon the consent or approval of holders of shares representing
66-2/3% of the shares of Series B Preferred Stock then outstanding, voting as a
single class and (2) with such other votes or consents as may be required by
Delaware law, the rules and regulations of the Securities and Exchange
Commission, the regulations of the NASDAQ or other securities exchange
applicable to the Corporation or pursuant to the Company's Certificate of
Incorporation, the Corporation may take any such action referenced in the
preceding clauses (i)-(ix).
(vi) Conversion Rights. (a) Optional Conversion of Series B Preferred
Stock. The holder of any shares of Series B Preferred Stock shall have the
right, at such holder's option, at any time or from time to time to convert any
or all of such holder's shares of Series B Preferred Stock into such number of
fully paid and nonassessable shares of Common Stock (the "Conversion Shares") as
determined for each share of Series B Preferred Stock by dividing the Stated
Value by the "Conversion Price" in effect at the time of such conversion. The
"Conversion Price" shall be $9.50 per share of Series B Preferred Stock, subject
to the adjustments set forth herein; provided, however, that if the Corporation
fails to pay, in cash, any and all dividends accrued, for any two Dividend
Payment Dates, whether consecutive or not (a "Dividend Default"), the Conversion
Price shall be reduced by $.50 for each such Dividend Default as of the date of
the occurrence of each such Dividend Default; and provided, further, that if the
Corporation fails to pay any and all accrued dividends on August 31, 1998, the
Conversion Price shall be reduced by $1.00; in each case subject to adjustment
as otherwise provided herein; provided, however, that a default in the payment
of any dividends accrued and unpaid as of August 31, 1998
<PAGE>
9
shall not be combined with any other default to constitute a Dividend Default;
provided, that in no event shall the Conversion Price be reduced pursuant to
this paragraph (vi)(a) by an aggregate amount in excess of $2.00 (the "Maximum
Amount"). (A) If a Dividend Default occurs at any time after the Conversion
Price has been reduced pursuant to this paragraph (vi)(a) by an aggregate amount
equal to the Maximum Amount, then the Dividend Rate shall be increased to 12.0%
per annum, or, (B) if as a result of a Dividend Default the Conversion Price
would (were it not for the last proviso of the immediately preceding sentence)
be reduced pursuant to this paragraph (vi)(a) by an aggregate amount in excess
of the Maximum Amount, then the Conversion Price shall be reduced by such
additional amount so that the aggregate amount by which the Conversion Price is
reduced pursuant to this paragraph (vi)(a) is equal to the Maximum Amount and
the Dividend Rate shall be increased to 12.0% per annum. The Conversion Shares
and the Conversion Price are subject to certain adjustments as set forth herein,
and the terms Conversion Shares and Conversion Price as used herein shall as of
any time be deemed to include all such adjustments to be given effect as of such
time in accordance with the terms hereof; provided, further, that under no
circumstances shall the Conversion Price be reduced to a level that is less than
the par value of the Common Stock.
Upon the exercise of the option of the holder of any shares of Series B
Preferred Stock to convert Series B Preferred Stock into Common Stock, the
holder of such shares of Series B Preferred Stock to be converted shall
surrender the certificates representing the shares of Series B Preferred Stock
so to be converted in the manner provided in clause (vi)(c) below. Immediately
following such conversion, the rights of the holders of converted Series B
Preferred Stock (other than the right to receive dividends accrued to the date
of such conversion) shall cease and the persons entitled to receive the Common
Stock upon the conversion of Series B Preferred Stock shall be treated for all
purposes (other than the right to receive dividends accrued to the date of such
conversion) as having become the owners of such Common Stock.
(b) Automatic Conversion. Subsequent to March 31, 2000, each
share of Series B Preferred Stock shall automatically be converted into shares
of Common Stock at the then applicable Conversion Price if (i) the Common Stock
has traded for a period of not less than twenty (20) consecutive days with an
average of not less than 300,000 shares per day and at a price per share of not
less than 200% of the then applicable Conversion Price and (ii) the Corporation
at its sole expense shall have caused to become effective within 90 days of such
twenty (20) consecutive day period a registration statement under the Securities
Act with respect to at least the number of shares equal to a 50% of the shares
of Common Stock into which the Series B Preferred Stock then outstanding is
convertible at the then applicable Conversion Price (or such lesser number as
shall have been requested to be registered by the holders of the Series B
Preferred Stock, following notice from the Company) and shall have caused all
such shares to be sold (allocated pro rata among holders of such Series B
Preferred Stock in relation to the number of shares requested to be
<PAGE>
10
registered pursuant to an underwritten public offering in accordance with
the provisions of Section 5 of the Amended and Restated Registration Rights
Agreement (the "Registration Rights Agreement") dated as of July 10, 1998 among
the Corporation and the parties thereto (or a registered but not underwritten
sale to one or more nationally recognized registered broker/dealers for resale
through a public distribution) at a per share price to each selling holder of
not less than 200% of the Conversion Price, less 1% of the then applicable
Market Price.
(c) Delivery of Stock Certificates; No Fractional Shares. The
holder of any shares of Series B Preferred Stock may exercise the optional
conversion right pursuant to clause (vi)(a) above by delivering to the
Corporation or its duly authorized transfer agent during regular business hours
at the office of the Corporation the certificate or certificates for the shares
to be converted, duly endorsed or assigned either in blank or to the Corporation
(if required by it), accompanied by written notice stating that such holder
elects to convert such shares and shall provide a certificate to the Corporation
or its duly authorized transfer agent as to the date of such conversion. Upon
the occurrence of an automatic conversion pursuant to clause (vi)(b) above, the
Corporation shall deliver notice to each holder of Series B Preferred Stock and
the holder of any shares of Series B Preferred Stock shall deliver to the
Corporation at the office of the Corporation the certificate or certificates for
all shares of Series B Preferred Stock then held by such holder, duly endorsed
or assigned either in blank or to the Corporation (if requested by it).
Conversion shall be deemed to have been effected (1) in the case of an optional
conversion, on the date when the aforesaid delivery of stock certificates is
made if such day is a Business Day and otherwise on the Business Day following
the date of the aforesaid delivery, and (2) in the case of an automatic
conversion pursuant to clause (vi)(b), upon the effective date of the
registration statement (provided that if the shares registered thereunder are
not sold no Conversion Date shall be deemed to have occurred) and in each case
such date is referred to herein as the "Conversion Date." As promptly as
practicable thereafter, the Corporation, through its transfer agent, shall issue
and deliver to or upon the written order of such holder, to the place designated
by such holder, a certificate or certificates for the number of full shares of
Common Stock to which such holder is entitled and a check or cash in respect of
any fractional interest in a share of Common Stock, as provided below; provided,
however, that in the case of a conversion in connection with liquidation, no
such certificates need be issued. The person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have become
the stockholder of record in respect of such Common Stock on the applicable
Conversion Date unless the transfer books of the Corporation are closed on that
date, in which event such holder shall be deemed to have become the stockholder
of record in respect of such Common Stock on the next succeeding date on which
the transfer books are open, but the Conversion Price shall be that in effect on
the Conversion Date. Upon conversion of only a portion of the number of shares
covered by a stock certificate representing shares of Series B Preferred Stock
surrendered for conversion, the Corporation shall issue and deliver to or upon
the written order of the holder of the stock certificate so
<PAGE>
11
surrendered for conversion, at the expense of the Corporation, a new stock
certificate covering the number of shares of Series B Preferred Stock
representing the unconverted portion of the certificate so surrendered. Any
transfer taxes applicable to the above described transactions shall be paid by
such transferee. The Corporation shall not be required to pay any tax which may
be payable in respect of any transfer involved in the issuance and delivery of
Common Stock or the reissuance of the Preferred Stock in a name other than that
in which the shares of Series B Preferred Stock so converted were registered,
and no such issuance or delivery shall be made unless and until the person
requesting such issuance has paid to the Corporation the amount of any such tax
or has established to the satisfaction of the Corporation that such tax has been
paid.
(d) No Fractional Shares of Common Stock. (1) No fractional
shares of Common Stock shall be issued upon conversion of shares of Series B
Preferred Stock and in lieu thereof, the Corporation shall pay a cash adjustment
in respect of such fractional interest in an amount equal to the then current
Market Price (as defined in clause (vi)(e)(8) below) of a share of Common Stock
multiplied by such fractional interest. The holders of fractional interests
shall not be entitled to any rights as stockholders of the Corporation in
respect of such fractional interests. In determining the number of shares of
Common Stock and the payment, if any, in lieu of fractional shares that a holder
of Series B Preferred Stock shall receive, the total number of shares of Series
B Preferred Stock surrendered for conversion by such holder shall be aggregated.
(2) On the first Dividend Payment Date on which
accrued dividends are paid in full to all holders of Series B Preferred Stock
following the optional conversion pursuant to clause (vi)(a) of all or any
portion of the Series B Preferred Stock, the Corporation shall pay (i) any
dividends accrued on such converted Series B Preferred Stock to the date of such
conversion plus (ii) any dividends accrued on any accrued and unpaid dividends
(on which dividends shall accrue at a rate of 7.50% per annum, compounded
quarterly) other than dividends accruing as of the last Dividend Payment Date.
Accrued dividends with respect to all shares converted pursuant to clause
(vi)(b) hereof shall be paid in full on the Conversion Date out of funds legally
available therefor.
(e) Adjustment of Conversion Price Upon Issuance of Common
Stock. If and whenever after the date hereof the Corporation shall issue or sell
any shares of its Common Stock (except upon conversion of the Series B Preferred
Stock) for a consideration per share less than, under certain circumstances
including those in paragraphs (1) through (9) below, the Conversion Price in
effect immediately prior to the time of such issue or sale, then, forthwith upon
such issue or sale, the Conversion Price shall be reduced (but not increased,
except as otherwise specifically provided in paragraph (3) below) to the price
(calculated to the nearest cent) determined by dividing (i) an amount equal to
the sum of (A) the aggregate number of shares of Common Stock outstanding
immediately prior to such issue or
<PAGE>
12
sale multiplied by the then existing Conversion Price and (B) the consideration,
if any, received by the Corporation upon such issue or sale, by (ii) the
aggregate number of shares of Common Stock of all classes outstanding
immediately after such issue or sale.
No adjustment of the Conversion Price, however, shall be made in an
amount less than $.05 per share, but any such lesser adjustment shall be carried
forward and shall be made upon the time of and together with the next subsequent
adjustment, if any.
For the purposes of this clause (vi)(e), the following paragraphs (1)
through (9) shall also be applicable:
(1) Issuance of Rights or Options - In case at any time after the date
hereof the Corporation shall in any manner grant (whether directly or by
assumption in a merger or otherwise, except in the circumstances described in
clause (vi)(f) below) any rights to subscribe for or to purchase, or any options
or warrants for the purchase of, Common Stock or any stock, notes or securities
convertible into or exchangeable for Common Stock (such convertible or
exchangeable stock, notes or securities being herein called "Convertible
Securities"), whether or not such rights, options or warrants or the right to
convert or exchange any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable upon the exercise of
such rights, options or warrants or upon conversion or exchange of such
Convertible Securities (determined by dividing (i) the total amount, if any,
received or receivable by the Corporation as consideration for the granting of
such rights, options or warrants, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the exercise
of such rights, options or warrants, plus, in the case of such rights, options
or warrants which relate to Convertible Securities, the minimum aggregate amount
of additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (ii) the
total maximum number of shares of Common Stock issuable upon the exercise of
such rights, options or warrants or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such rights, options or
warrants) shall be less than the Conversion Price in effect immediately prior to
the time of the granting of such rights, options or warrants, then the total
maximum number of shares of Common Stock issuable upon the exercise of such
rights, options or warrants or upon conversion or exchange of all such
Convertible Securities issuable upon the exercise of such rights, options or
warrants shall (as of the date of granting of such rights or options) be deemed
to be outstanding and to have been issued for such price per share. Except as
provided in paragraph (3), no further adjustment of the Conversion Price shall
be made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such rights, options or warrants or upon the actual
issue of such Common Stock upon conversion or exchange of such Convertible
Securities.
<PAGE>
13
(2) Issuance of Convertible Securities - In case at any time after the
date hereof the Corporation shall in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell any Convertible Securities, whether
or not the rights to exchange or convert thereunder are immediately exercisable,
and the price per share for which Common Stock is issuable upon such conversion
or exchange (determined by dividing (i) the total amount received or receivable
by the Corporation as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion or exchange thereof, by (ii)
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) shall be less than the
Conversion Price in effect immediately prior to the time of such issue or sale,
then the total maximum number of shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities shall (as of the date of the
issue or sale of such Convertible Securities) be deemed to be outstanding and to
have been issued for such price per share; provided, however, that (a) except as
otherwise provided in paragraph (3), no further adjustment of the Conversion
Price shall be made upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities, and (b) if any such issue or sale of
such Convertible Securities is made upon exercise of any rights to subscribe for
or to purchase or any option to purchase any such Convertible Securities for
which adjustments of the Conversion Price have been or are to be made pursuant
to other provisions of this clause (vi)(e), no further adjustment of the
Conversion Price shall be made by reason of such issue or sale.
(3) Change in Option Price or Conversion Rate - If the purchase price
provided for in any right or option referred to in paragraph (1), the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in paragraph (1) or (2), or the rate at which
any Convertible Securities referred to in paragraph (1) or (2) are convertible
into or exchangeable for Common Stock shall change (other than under or by
reason of provisions designed to protect against dilution), the Conversion Price
then in effect hereunder shall forthwith be readjusted (increased or decreased,
as the case may be) to the Conversion Price which would have been in effect at
such time had such rights, options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted, issued or sold. On the
expiration of any such option or right referred to in paragraph (1) or the
termination of any such right to convert or exchange any such Convertible
Securities referred to in paragraph (1) or (2), the Conversion Price then in
effect hereunder shall forthwith be readjusted (increased or decreased, as the
case may be) to the Conversion Price which would have been in effect at the time
of such expiration or termination had such right, option or Convertible
Securities, to the extent outstanding immediately prior to such expiration or
termination, never been granted, issued or sold, and the Common Stock issuable
thereunder shall no longer be deemed to be outstanding. If the purchase price
provided for in any such right or option referred to in paragraph (1) or the
rate at which any Convertible Securities
<PAGE>
14
referred to in paragraph (1) or (2) are convertible into or exchangeable for
Common Stock shall be reduced at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then in case of the
delivery of shares of Common Stock upon the exercise of any such right or option
or upon conversion or exchange of any such Convertible Securities, the
Conversion Price then in effect hereunder shall, if not already adjusted,
forthwith be adjusted to such amount as would have obtained had such right,
option or Convertible Securities never been issued as to such shares of Common
Stock and had adjustments been made upon the issuance of the shares of Common
Stock delivered as aforesaid, but only if as a result of such adjustment the
Conversion Price then in effect hereunder is thereby reduced.
(4) Stock Dividends - In case at any time (other than with respect to
the Series B Preferred Stock and, to the extent the holders of shares of Series
B Preferred Stock participate on an as-converted basis, the Common Stock) the
Corporation shall declare a dividend or make any other distribution upon any
class or series of stock of the Corporation payable in shares of Common Stock or
Convertible Securities, any shares of Common Stock or Convertible Securities, as
the case may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
(5) Consideration for Stock - Anything herein to the contrary
notwithstanding, in case at any time any shares of Common Stock or Convertible
Securities or any rights, options or warrants to purchase any such Common Stock
or Convertible Securities shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the Corporation
therefor, without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Corporation in
connection therewith.
In case at any time any shares of Common Stock or any class or
Convertible Securities or any rights or options to purchase any such shares of
Common Stock or Convertible Securities shall be issued or sold for a
consideration other than cash, in whole or in part, the amount of the
consideration other than cash received by the Corporation shall be deemed to be
the fair value of such consideration as determined reasonably and in good faith
by the Board of Directors of the Corporation, without deduction of any expenses
incurred or any underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. In case at any time any shares of Common
Stock or any class or Convertible Securities or any rights or options to
purchase such shares of Common Stock or Convertible Securities shall be issued
in connection with any merger or consolidation in which the Corporation is the
surviving corporation, the amount of consideration received therefor shall be
deemed to be the fair value as determined reasonably and in good faith by the
Board of Directors of the Corporation of such portion of the assets and business
of the nonsurviving corporation as such Board may determine to be attributable
to such shares of Common Stock, Convertible Securities,
<PAGE>
15
rights or options, as the case may be. In case at any time any rights or options
to purchase any shares of Common Stock or Convertible Securities shall be issued
in connection with the issue and sale of other securities of the Corporation,
together comprising one integral transaction in which no consideration is
allocated to such rights or options by the parties thereto, such rights or
options shall be deemed to have been issued for an amount of consideration equal
to the fair value thereof as determined reasonably and in good faith by the
Board of Directors of the Corporation.
(6) Record Date - In case the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in shares of Common Stock or in
Convertible Securities, or (B) to subscribe for or purchase shares of Common
Stock or Convertible Securities, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold as a result of the declaration of such dividend or the making or
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(7) Treasury Shares - The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the account
of the Corporation, and the disposition of any such shares shall be considered
an issue or sale of Common Stock for the purposes of this clause (vi)(e).
(8) Definition of Market Price - Unless otherwise set forth in this
Certificate of Designation, "Market Price" shall mean the last reported sale
price of the applicable security as reported by the National Association of
Securities Dealers, Inc. Automatic Quotations System, National Market System,
or, if the applicable security is listed or admitted for trading on a securities
exchange, the last reported sales price of the applicable security on the
principal exchange on which the applicable security is listed or admitted for
trading (which shall be for consolidated trading if applicable to such
exchange), or if neither so reported or listed or admitted for trading, the last
reported bid price of the applicable security in the over-the-counter market. In
the event that the Market Price cannot be determined as aforesaid, the Board of
Directors of the Corporation shall determine the Market Price on the basis of
such quotations as it in good faith considers appropriate, in consultation with
a nationally recognized investment bank. The Market Price shall be such price
averaged over a period of 20 consecutive business days ending 2 days prior to
the day as of which "Market Price" is being determined.
(9) Adjustment to Determination of Market Price - When making the
calculations and determinations described in clause (vi)(e) hereof, there shall
not be taken into account (i) the issuance of Common Stock upon the exercise of
options outstanding on the date this Certificate of Designation was filed with
the State of Delaware for the purchase of up to 554,350 shares of Common Stock,
(ii) the issuance of any rights to subscribe for or to purchase, or any options
for the purchase of, up to 1.5% of the fully diluted shares of Common Stock of
the Corporation as of
<PAGE>
16
the date of issuance of all shares of Series A Preferred Stock or any stock or
securities convertible into or exchangeable for Common Stock to officers or
directors ("Officers/Directors Securities") and (iii) the issuance of any
options for the purchase of Common Stock to employees of the Corporation other
than officers or directors pursuant to the standard option awards program
adopted by the Board of Directors of the Corporation, but excluding any
discretionary awards outside of such program ("Employee Securities" and,
together with the Officers/Directors Securities, the "Company Securities");
provided, that all Common Stock issuable with respect to any such Company
Securities be issuable at or above the Market Price as of the date of the grant.
(f) Liquidating Dividends; Purchase Rights. (1) In case at any time
after the date hereof the Corporation shall declare a dividend upon the shares
of Common Stock of any class payable otherwise than in shares of Common Stock or
Convertible Securities, otherwise than out of funds legally available therefor
(determined in accordance with generally accepted accounting principles,
including the making of appropriate deductions for minority interests, if any,
in subsidiaries), and otherwise than in the securities to which the provisions
of clause (2) below apply, the corporation shall pay over to each holder of
Series B Preferred Stock, upon conversion thereof on or after the dividend
payment date, the securities and other property (including cash) which such
holder would have received (together with all distributions thereon) if such
holder had converted the Series B Preferred Stock held by it on the record date
fixed on connection with such dividend, and the Corporation shall take whatever
steps are necessary or appropriate to keep in reserve at all times such
securities and other property as shall be required to fulfill its obligations
hereunder in respect of the shares issuable upon the exercise or conversion of
all the Series B Preferred Stock. For the purposes of the foregoing, a dividend
other than in cash shall be considered payable out of funds legally available
therefor, only to the extent that such earnings or retained earnings are charged
an amount equal to the fair value of such dividend as determined by the Board of
Directors of the Corporation.
(2) If at any time or from time to time on or after
the date hereof, the Corporation shall grant, issue or sell any options or
rights (other than Convertible Securities) to purchase stock, warrants,
securities or other property pro rata to the holders of Common Stock of all
classes ("Purchase Rights"), and if the holder shall be entitled to an
adjustment pursuant to clause (vi)(e) above, then in lieu of such adjustment,
each holder of Series B Preferred Stock shall be entitled, at such holder's
option, to acquire (whether or not such holder's Series B Preferred Stock shall
have been converted), upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such holder
had held the number of shares of Common Stock issuable upon conversion of such
Series B Preferred Stock immediately prior to the time or times at which the
Corporation granted, issued or sold such Purchase Rights.
<PAGE>
17
(g) Subdivision or Combination of Stock. In case the
Corporation shall at any time subdivide its outstanding shares of Common Stock
into a greater number of shares, the Conversion Price in effect immediately
prior to such subdivision shall be proportionately reduced and, conversely, in
case the outstanding shares of Common Stock of the Corporation shall be combined
into a smaller number of shares, the Conversion Price in effect immediately
prior to such combination shall be proportionately increased.
(h) Changes in Common Stock. If any capital reorganization or
reclassification of the capital stock of the Corporation, or consolidation or
merger of the Corporation with another corporation, or the sale, transfer or
other disposition of all or substantially all of its assets to another
corporation for cash or stock of such other corporation, shall be effected,
then, as a condition of such reorganization, reclassification, consolidation,
merger, sale transfer or other disposition, lawful and adequate provision shall
be made whereby each holder of Series B Preferred Stock shall thereafter have
the right to purchase and receive upon the basis and upon the terms and
conditions herein specified and in lieu of the shares of the Common Stock of the
Corporation immediately theretofore issuable upon conversion of the Series B
Preferred Stock, such shares of stock, securities or properties as may be
issuable or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such Common Stock
immediately theretofore issuable upon conversion of the Series B Preferred Stock
had such reorganization, reclassification, consolidation, merger, sale, transfer
or other disposition not taken place, and in any such case appropriate
provisions shall be made with respect to the rights and interests of each holder
of Series B Preferred Stock to the end that the provision hereto (including
without limitation provisions for adjustment of the Conversion Price) shall
thereafter be applicable, as nearly equivalent as may be practicable in relation
to any shares of stock, securities or properties thereafter deliverable upon the
exercise thereof. The Corporation shall not effect any such consolidation,
merger, sale, transfer or other disposition, unless prior to or simultaneously
with the consummation thereof the successor corporation (if other than the
Corporation) resulting from such consolidation or merger or the corporation
purchasing or otherwise acquiring such properties shall assume, by written
instrument executed and mailed or delivered to the holders of Series B Preferred
Stock at the last address of such holders appearing on the books of the
Corporation, the obligation to deliver to such holders such shares of stock,
securities or properties as, in accordance with the foregoing provisions, such
holders may be entitled to acquire. The above provisions of this subparagraph
shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales, transfers or other dispositions.
(i) Certain Events. If any event occurs as to which in the
opinion of the Board of Directors of the Corporation the other provisions of
this clause (vi) are not strictly applicable or if strictly applicable would not
fairly protect the conversion rights of the holders of the Series B Preferred
Stock in accordance
<PAGE>
18
with the essential intent and principles of such provisions, then such Board of
Directors, acting by a vote of at least 75% of the members thereof, shall
provide for the benefit of holders of shares of Series B Preferred Stock an
adjustment, if any, on a basis consistent with such essential intent and
principles, necessary to preserve, without dilution, the rights of the holders
of the Series B Preferred Stock. Upon such vote by the Board of Directors, the
Corporation shall forthwith make the adjustments described therein; provided,
however, that no such adjustments shall have the effect of increasing the
Conversion Price as otherwise determined pursuant to this clause (vi) except in
the event of a combination of shares of the type contemplated in clause (vi)(g)
and then in no event to an amount larger than the conversion price as adjusted
pursuant to clause (vi)(g).
(j) Prohibition of Certain Actions. The Corporation shall not,
without the affirmative consent or approval of the holders of shares
representing 66-2/3% of the shares of Series B Preferred Stock then outstanding,
voting as a single class (such consent or approval to be given by written
consent in lieu of a meeting (if allowable under the Corporation's Certificate
of Incorporation) or by vote at a meeting called for such purpose for which
notice shall have been given to the holders of the Series B Preferred Stock) (1)
authorize or issue, or agree to authorize or issue, any shares of its capital
stock of any class or series of preferred as to dividends or liquidation, unless
the rights of the holders thereof shall be limited to a fixed sum or percentage
of par value in respect of participation in dividends and in the distribution of
such assets or (2) authorize, issue or permit to remain outstanding any class or
series of its capital stock (including, without limitation, the Common Stock but
not including the Series A Preferred Stock and the Series B Preferred Stock)
having the right to vote for the election of directors or in respect of any
other matter, which class or series is entitled to more than one vote per share.
The Corporation will not take any action which would result in any adjustment of
the Conversion Price if the total number of shares of Common Stock issuable
after such action upon conversion of all the Series B Preferred Stock would
exceed the total number of shares of Common Stock then authorized by the
Corporation's Certificate of Incorporation.
(k) Stock to be Reserved. The Corporation will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issue upon the conversion of Series B Preferred Stock as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding Series B Preferred Stock. The Corporation
covenants that all shares of Common Stock which shall be so issuable shall, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable, free
from preemptive or similarly rights on the part of the holders of any shares of
capital stock or securities of the Corporation, and free from all liens and
charges with respect to the issue thereof; and without limiting the generality
of the foregoing, the Corporation covenants that it will from time to time take
all such action as may be requisite to assure that the par value, if any, per
share of the Common Stock is at all times equal to or less than the then
effective Conversion Price. The Corporation will take all such action as may be
<PAGE>
19
necessary to assure that such shares of Common Stock may be so issued without
violation by the Corporation of any applicable law or regulation or agreement,
or of any requirements of any domestic securities exchange upon which the Common
Stock may be listed. Without limiting the foregoing, the Corporation will take
all such action as may be necessary to assure that, upon conversion of any of
the Series B Preferred Stock, an amount equal to the lesser of (1) the par value
of each share of Common Stock outstanding immediately prior to such conversion,
or (2) the Conversion Price shall be credited to the Corporation's stated
capital account for each share of Common Stock issued upon such conversion, and
that, if clause (1) above is applicable, the balance of the Conversion Price of
Series B Preferred Stock converted shall be credited to the Corporation's
capital surplus account.
(l) Registration and Listing of Common Stock. If any shares
of Common Stock required to be reserved for purposes of conversion of Series B
Preferred Stock hereunder require registration with or approval of any
governmental authority under any Federal or state law (other than the Securities
Act) before such shares may be issued upon conversion, the Corporation will, at
its expense and as expeditiously as possible, use its best efforts to cause such
shares to be duly registered or approved, as the case may be. Shares of Common
Stock issuable upon conversion of the Series B Preferred Stock shall be
registered by the Corporation under the Securities Act or similar statute then
in force if required before such shares may be issued upon conversion. If and so
long as the Common Stock is listed on any national securities exchange, the
Corporation will, at its expense, obtain promptly and maintain the approval for
listing on each such exchange upon official notice of issuance, of shares of
Common Stock issuable upon conversion of the then outstanding Series B Preferred
Stock and maintain the listing of such shares after their issuance; and the
Corporation will also list on such national securities exchange, will register
under the Exchange Act and will maintain such listing of, any other securities
that at any time are issuable upon conversion of the Series B Preferred Stock,
if and at the time that any securities of the same class shall be listed on such
national securities exchange by the Corporation.
(m) Closing of Books. The Corporation will at no time close
its transfer books against the transfer of any Series B Preferred Stock or of
any shares of Common Stock issued or issuable upon the conversion of any Series
B Preferred Stock in any manner which interferes with the timely conversion of
such Series B Preferred Stock.
(n) Statement of Adjustment of Conversion Price. Whenever the
Conversion Price shall be adjusted as provided in clause (vi)(e) above, the
Corporation shall forthwith file at its office a statement, signed by its
independent certified public accounts, showing in detail the facts requiring
such adjustment and the Conversion Price that shall be in effect after such
adjustment. The Corporation shall also cause a copy of such statement to be sent
by certified mail, return receipt requested, to each holder of shares of Series
B Preferred Stock to such holder's
<PAGE>
20
address appearing on the Corporation's records. Where appropriate, such copy may
be given in advance and may be included as part of a notice required to be
mailed under the provisions of clause (vi)(o) below.
(o) Notice. In the event the Corporation shall propose to take
any action of the types described in clause (vi)(e) above, the Corporation shall
give notice to each holder of shares of Series B Preferred Stock which notice
shall specify the record date, if any, with respect to any such action and the
date on which such action is to take place. Such notice shall also set forth
such facts with respect thereto as shall be reasonable necessary to indicate the
effect of such action (to the extent such effect may be known at the date of
such notice) on the Conversion Price and the number, kind or class of shares or
other securities or property which shall be deliverable or purchasable upon the
occurrence of such action or deliverable upon conversion of shares of Series B
Preferred Stock. In the case of any action which would require the fixing of a
record date, such notice shall be given at least 20 days prior to the date so
fixed, and in case of all other action, such notice shall be given at least 30
days prior to the taking of such proposed action.
(p) Taxes. The Corporation shall pay all documentary, stamp or
other transactional taxes attributable to the issuance or delivery of shares of
capital stock of the Corporation upon conversion of any shares of Series B
Preferred Stock. The Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of Common Stock or the reissuance of the Preferred Stock in a name
other than that in which the shares of Series B Preferred Stock so converted
were registered, and no such issuance or delivery shall be made unless and until
the person requesting such issuance has paid to the Corporation the amount of
any such tax or has established to the satisfaction of the Corporation that such
tax has been paid.
(q) Exclusion of Other Rights. Except as may otherwise be
required by law, the shares of Series B Preferred Stock shall not have any
voting powers, preferences and relative, participating, optional or other
special rights, other than those specifically set forth in this resolution and
in the Certificate of Incorporation. The shares of Series B Preferred Stock
shall have no preemptive or subscription rights.
<PAGE>
21
IN WITNESS WHEREOF, Candlewood Hotel Company, Inc. has caused these
presents to be signed in its name and on its behalf by its Chief Executive
Officer on July 13, 1998.
CANDLEWOOD HOTEL
COMPANY, INC.
By: /s/ Jack P. DeBoer
----------------------
Name: Jack P. DeBoer
Title: Chief Executive Officer
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED,
QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS AND NEITHER THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY AUTHORITY HAS
PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES.
WARRANT NO. ___
WARRANT
TO PURCHASE SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE
OF
CANDLEWOOD HOTEL COMPANY, INC.
THIS IS TO CERTIFY THAT [ ] or its registered assigns (the "Holder"),
is the owner of [ ] Warrants (the "Warrants"), each of which entitles the
registered Holder thereof to purchase from CANDLEWOOD HOTEL COMPANY, INC., a
Delaware corporation (the "Company"), one fully paid, duly authorized and
nonassessable share of Common Stock, par value $.01 per share (the "Common
Stock"), of the Company at any time or from time to time on or before 5:00 p.m.,
New York City time, on the Warrant Expiration Date (which shall in no event be
later than July 10, 2005), at an exercise price of $12.00 per share (the
"Exercise Price"), subject to adjustment from time to time as set forth herein,
all on the terms and subject to the conditions hereinafter set forth.
The number of shares of Common Stock issuable upon exercise of each
Warrant (the "Number Issuable") shall be determined for each Warrant by dividing
$12.00 by the Exercise Price in effect at the time of such exercise, and is
initially one (1) share of Common Stock.
<PAGE>
2
Capitalized terms used herein but not otherwise defined shall have the
meanings given them in Section 11 hereof or, if not therein defined, in the
Securities Purchase Agreement.
Section 1. Exercise of Warrant. Subject to the last paragraph of this
Section 1, the Warrants evidenced hereby may be exercised, in whole or in part,
by the registered Holder hereof at any time or from time to time on or before
5:00 p.m., New York City time, on the Warrant Expiration Date, upon delivery to
the Company at the principal executive office of the Company in the United
States of America, of (a) this Warrant Certificate, (b) a written notice stating
that such Holder elects to exercise the Warrants evidenced hereby in accordance
with the provisions of this Section 1 and specifying the number of Warrants
being exercised and the name or names in which such Holder wishes the
certificate or certificates for shares of Common Stock to be issued and (c)
payment of the Exercise Price for the shares of Common Stock issuable upon
exercise of such Warrants, which shall be payable by any one or any combination
of the following: (i) cash, (ii) certified or official bank check payable to the
order of the Company, (iii) by the surrender (which surrender shall be evidenced
by cancellation of the number of Warrants represented by any Warrant certificate
presented in connection with a Cashless Exercise (as defined below)) of a
Warrant or Warrants (represented by one or more relevant Warrant certificates),
and without the payment of the Exercise Price in cash, in return for the
delivery to the surrendering holder of such number of shares of Common Stock
equal to the number of shares of Common Stock for which such Warrant is
exercisable as of the date of exercise (if the Exercise Price were being paid in
cash) reduced by that number of shares of Common Stock equal to the quotient
obtained by dividing (x) the Exercise Price by (y) the Market Price of one share
of Common Stock on the Business Day which next precedes the day of exercise of
the Warrant or (iv) by the delivery of shares of Common Stock that are either
held by the Holder or are acquired in connection with such exercise, and without
payment of the Exercise Price in cash. Any share of Common Stock delivered as
payment of the Exercise Price in connection with an In-Kind Exercise (as defined
below) shall be deemed to have a value equal to the Market Price of one share of
Common Stock on the Business Day which next precedes the day of exercise of the
Warrant. An exercise of a Warrant in accordance with clause (iii) is herein
referred to as a "Cashless Exercise" and an exercise of a Warrant in accordance
with clause (iv) is herein referred to as an "In- Kind Exercise." The
documentation and consideration, if any, delivered in accordance with
subsections (a), (b) and (c) are collectively referred to herein as the "Warrant
Exercise Documentation." For the purposes of this Section 1, Market Price shall
be calculated without reference to the last sentence of the definition thereof.
As promptly as practicable, and in any event within five (5) Business
Days after receipt of the Warrant Exercise Documentation, the Company shall
deliver or cause to be delivered (a) certificates representing the number of
validly issued, fully paid and nonassessable shares of Common Stock issuable in
connection with
<PAGE>
3
such exercise, (b) if applicable, cash in lieu of any fraction of a share, as
hereinafter provided and (c) if less than the full number of Warrants evidenced
hereby are being exercised, a new Warrant Certificate or Certificates, of like
tenor, for the number of Warrants evidenced by this Warrant Certificate, less
the number of Warrants then being exercised; provided, however, that no new
Warrant Certificate need be delivered if the Warrant Expiration Date has
occurred. Such exercise shall be deemed to have been made at the close of
business on the date of delivery of the Warrant Exercise Documentation so that
the Person entitled to receive shares of Common Stock upon such exercise shall
be treated for all purposes as having become the record Holder of such shares of
Common Stock at such time. No such surrender shall be effective to constitute
the person entitled to receive such shares as the record Holder thereof while
the transfer books of the Company for the Common Stock are closed for any
purpose (but not for any period in excess of five (5) days); but any such
surrender of this Warrant Certificate for exercise during any period while such
books are so closed shall become effective for exercise immediately upon the
reopening of such books, as if the exercise had been made on the date this
Warrant Certificate was surrendered and for the number of shares of Common Stock
specified in the Warrant Exercise Documentation and at the Exercise Price.
The Company shall pay all expenses in connection with, and all taxes
and other governmental charges (other than income taxes of the Holder) that may
be imposed in respect of, the issue or delivery of any shares of Common Stock
issuable upon the exercise of the Warrants evidenced hereby. The Company shall
not be required, however, to pay any tax or other charge imposed in connection
with any transfer involved in the issue of any certificate for shares of Common
Stock in any name other than that of the registered Holder of the Warrants
evidenced hereby.
In connection with the exercise of any Warrants evidenced hereby, no
fractions of shares of Common Stock shall be issued, but in lieu thereof the
Company shall pay a cash adjustment in respect of such fractional interest in an
amount equal to such fractional interest multiplied by the current Market Price
per share of Common Stock on the Business Day which next precedes the day of
exercise. If more than one such Warrant shall be exercised by the Holder thereof
at the same time, the number of full shares of Common Stock issuable on such
exercise shall be computed on the basis of the total number of Warrants so
exercised.
Section 2. Adjustments.
(a) Adjustment of Exercise Price Upon Issuance of Common Stock. If and
whenever after the Issue Date the Company shall issue or sell any shares of its
Common Stock (except upon exercise of the Warrants and shares issued as a result
of adjustments made under the terms of the Warrants) for a consideration per
share less than, under certain circumstances including those in paragraphs (i)
through (ix) below, the Conversion Price then in effect at the time of such
issuance or sale (the "Date"), then, and in each such case, the Exercise Price
then in effect shall be
<PAGE>
4
adjusted by dividing the Exercise Price in effect on the day immediately prior
to the Date by a fraction (x) the numerator of which shall be the aggregate
number of shares of Common Stock of all classes outstanding immediately after
such issue or sale and (y) the denominator of which shall be the sum of (A) the
aggregate number of shares of Common Stock outstanding immediately prior to such
issue or sale plus (B) the aggregate number of shares of Common Stock which
would have been issued or sold in connection with such issue or sale if such
shares had been issued or sold at the then existing Conversion Price.
No adjustment of the Exercise Price, however, shall be made in an
amount less than $.05 per share, but any such lesser adjustment shall be carried
forward and shall be made upon the time of and together with the next subsequent
adjustment, if any.
For the purposes of this Section 2(a), the following paragraphs (i)
through (ix) shall also be applicable:
(i) Issuance of Rights or Options - In case at any time after
the Issue Date the Company shall in any manner grant (whether directly or by
assumption in a merger or otherwise, except in the circumstances described in
Section 2(c) below) any rights to subscribe for or to purchase, or any options
or warrants for the purchase of, Common Stock or any stock, notes or securities
convertible into or exchangeable for Common Stock (such convertible or
exchangeable stock, notes or securities being herein called "Convertible
Securities"), whether or not such rights, options or warrants or the right to
convert or exchange any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable upon the exercise of
such rights, options or warrants or upon conversion or exchange of such
Convertible Securities (determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the granting of such
rights, options or warrants, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise of such rights,
options or warrants, plus, in the case of such rights, options or warrants which
relate to Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the exercise of such
rights, options or warrants or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such rights, options or
warrants) shall be less than the Conversion Price in effect immediately prior to
the time of the granting of such rights, options or warrants, then the total
maximum number of shares of Common Stock issuable upon the exercise of such
rights, options or warrants or upon conversion or exchange of all such
Convertible Securities issuable upon the exercise of such rights, options or
warrants shall (as of the date of granting of such rights or options) be deemed
to be outstanding and to have been issued for such price per share. Except as
provided in paragraph (iii), no further adjustment of the Exercise
<PAGE>
5
Price shall be made upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such rights, options or warrants or upon
the actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
(ii) Issuance of Convertible Securities - In case at any time
after the Issue Date the Company shall in any manner issue (whether directly or
by assumption in a merger or otherwise) or sell any Convertible Securities,
whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is issuable upon
such conversion or exchange (determined by dividing (i) the total amount
received or receivable by the Company as consideration for the issue or sale of
such Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities) shall be
less than the Conversion Price in effect immediately prior to the time of such
issue or sale, then the total maximum number of shares of Common Stock issuable
upon conversion or exchange of all such Convertible Securities shall (as of the
date of the issue or sale of such Convertible Securities) be deemed to be
outstanding and to have been issued for such price per share; provided, however,
that (a) except as otherwise provided in paragraph (iii), no further adjustment
of the Exercise Price shall be made upon the actual issue of such Common Stock
upon conversion or exchange of such Convertible Securities, and (b) if any such
issue or sale of such Convertible Securities is made upon exercise of any rights
to subscribe for or to purchase or any option to purchase any such Convertible
Securities for which adjustments of the Exercise Price have been or are to be
made pursuant to other provisions of this Section 2(a), no further adjustment of
the Exercise Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate - If the
purchase price provided for in any right or option referred to in paragraph (i),
the additional consideration, if any, payable upon the conversion or exchange of
any Convertible Securities referred to in paragraph (i) or (ii), or the rate at
which any Convertible Securities referred to in paragraph (i) or (ii) are
convertible into or exchangeable for Common Stock shall change (other than under
or by reason of provisions designed to protect against dilution), the Exercise
Price then in effect hereunder shall forthwith be readjusted (increased or
decreased, as the case may be) to the Exercise Price which would have been in
effect at such time had such rights, options or Convertible Securities still
outstanding provided for such changed purchase price, additional consideration
or conversion rate, as the case may be, at the time initially granted, issued or
sold. On the expiration of any such option or right referred to in paragraph (i)
or the termination of any such right to convert or exchange any such Convertible
Securities referred to in paragraph (i) or (ii), the Exercise Price then in
effect hereunder shall forthwith be readjusted (increased or decreased, as the
case may be) to the Exercise Price which would have been in effect
<PAGE>
6
at the time of such expiration or termination had such right, option or
Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination, never been granted, issued or sold, and the Common
Stock issuable thereunder shall no longer be deemed to be outstanding. If the
purchase price provided for in any such right or option referred to in paragraph
(i) or the rate at which any Convertible Securities referred to in paragraph (i)
or (ii) are convertible into or exchangeable for Common Stock shall be reduced
at any time under or by reason of provisions with respect thereto designed to
protect against dilution, then in case of the delivery of shares of Common Stock
upon the exercise of any such right or option or upon conversion or exchange of
any such Convertible Securities, the Exercise Price then in effect hereunder
shall, if not already adjusted, forthwith be adjusted to such amount as would
have obtained had such right, option or Convertible Securities never been issued
as to such shares of Common Stock and had adjustments been made upon the
issuance of the shares of Common Stock delivered as aforesaid, but only if as a
result of such adjustment the Exercise Price then in effect hereunder is thereby
reduced.
(iv) Stock Dividends - In case at any time the Company shall
declare a dividend or make any other distribution upon any class or series of
stock of the Company payable in shares of Common Stock or Convertible
Securities, any shares of Common Stock or Convertible Securities, as the case
may be, issuable in payment of such dividend or distribution shall be deemed to
have been issued or sold without consideration.
(v) Consideration for Stock - Anything herein to the contrary
notwithstanding, in case at any time any shares of Common Stock or Convertible
Securities or any rights, options or warrants to purchase any such Common Stock
or Convertible Securities shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the Company
therefor, without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Company in
connection therewith.
In case at any time any shares of Common Stock or any class or
Convertible Securities or any rights or options to purchase any such shares of
Common Stock or Convertible Securities shall be issued or sold for a
consideration other than cash, in whole or in part, the amount of the
consideration other than cash received by the Company shall be deemed to be the
fair value of such consideration as determined reasonably and in good faith by
the Board of Directors of the Company, without deduction of any expenses
incurred or any underwriting commissions or concessions paid or allowed by the
Company in connection therewith. In case at any time any shares of Common Stock
or any class or Convertible Securities or any rights or options to purchase such
shares of Common Stock or Convertible Securities shall be issued in connection
with any merger or consolidation in which the Company is the surviving Company,
the amount of consideration received therefor shall be deemed to be the fair
value as determined reasonably and in
<PAGE>
7
good faith by the Board of Directors of the Company of such portion of the
assets and business of the nonsurviving Company as such Board may determine to
be attributable to such shares of Common Stock, Convertible Securities, rights
or options, as the case may be. In case at any time any rights or options to
purchase any shares of Common Stock or Convertible Securities shall be issued in
connection with the issue and sale of other securities of the Company, together
comprising one integral transaction in which no consideration is allocated to
such rights or options by the parties thereto, such rights or options shall be
deemed to have been issued for an amount of consideration equal to the fair
value thereof as determined reasonably and in good faith by the Board of
Directors of the Company.
(vi) Record Date - In case the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in shares of Common Stock or in
Convertible Securities, or (B) to subscribe for or purchase shares of Common
Stock or Convertible Securities, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold as a result of the declaration of such dividend or the making or
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(vii) Treasury Shares - The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purposes of this Section
2(a).
(viii) Adjustment to Determination of Exercise Price - When
making the calculations and determinations described in this Section 2(a), there
shall not be taken into account (i) the issuance of Common Stock upon the
exercise of options outstanding on the Issue Date for the purchase of up to
554,350 shares of Common Stock, (ii) the issuance of any rights to subscribe for
or to purchase, or any options for the purchase of, up to 1.5% of the fully
diluted shares of Common Stock of the Company as of the date of original
issuance of all shares of Series A Preferred Stock or any stock or securities
convertible into or exchangeable for Common Stock to officers or directors
("Officers/Directors Securities") and (iii) the issuance of any options for the
purchase of Common Stock to employees of the Company other than officers or
directors pursuant to the standard option awards program adopted by the Board of
Directors of the Company, but excluding any discretionary awards outside of such
program ("Employee Securities" and, together with the Officers/Directors
Securities, the "Company Securities"); provided, that all Common Stock issuable
with respect to any such Company Securities be issuable at or above the Market
Price as of the date of the grant.
(ix) In case the Company at any time or from time to time
shall take any action which could have a dilutive effect on the number of shares
of Common Stock that may be issued upon exercise of the Warrants, other than an
<PAGE>
8
action described in Section 2(a) or Section 2(b), then, the Exercise Price shall
be adjusted in such manner and at such time as the Board of Directors of the
Company reasonably determines to be equitable under the circumstances (such
determination to be evidenced in a resolution, a certified copy of which shall
be mailed to the Holder of the Warrants evidenced hereby).
(x) The Company promptly shall deliver to each registered
Holder of Warrants at least five (5) Business Days prior to effecting any
transaction which would result in an increase or decrease in the Exercise Price
pursuant to this Section 2, together with a certificate, signed by the Chief
Executive Officer, President or a Vice-President and by the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary of the Company,
setting forth in reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated and specifying the increased or
decreased Exercise Price then in effect following such adjustment.
(xi) Notwithstanding anything contrary contained in this
Section 2(a), the Company shall be entitled to make such adjustments in the
Exercise Price, in addition to those otherwise required by this Section 2(a), as
the Board of Directors of the Company in its discretion shall determine to be
advisable in order that any stock dividend, subdivision or combination of
shares, distribution of rights or warrants to purchase stock or securities, or
distribution of securities convertible into or exchangeable for Common Stock,
hereafter made by the Company to its stockholders shall not be taxable;
provided, however, that any such adjustment shall be made, as nearly as
practicable, in a manner which treats all Holders of Warrants with similar
protections on an equal basis.
(b) Reorganization, Reclassification, Consolidation, Merger or Sale of
Assets. In case of any capital reorganization or reclassification or other
change of outstanding shares of Common Stock (other than a change in par value,
or from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), or in case of any consolidation or
merger of the Company with or into another Person (other than a consolidation or
merger in which the Company is the resulting or surviving person and which does
not result in any reclassification or change of outstanding Common Stock) (any
of the foregoing, a "Transaction"), the Company, or such successor or purchasing
Person, as the case may be, shall execute and deliver to each Holder of the
Warrants evidenced hereby, at least five (5) Business Days prior to effecting
any of the foregoing Transactions, a certificate that the Holder of each such
Warrant then outstanding shall have the right thereafter to exercise such
Warrant into the kind and amount of shares of stock or other securities (of the
Company or another issuer) or property or cash receivable upon such Transaction
by a holder of the number of shares of Common Stock into which such Warrant
could have been exercised immediately prior to such Transaction. Such
certificate shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 2 and shall
contain
<PAGE>
9
other terms identical to the terms hereof. If, in the case of any such
Transaction, the stock, other securities, cash or property receivable thereupon
by a holder of Common Stock includes shares of stock or other securities of a
Person other than the successor or purchasing Persons and other than the
Company, which controls or is controlled by the successor or purchasing Person
or which, in connection with such Transaction, issues stock, securities, other
property or cash to holders of Common Stock, then such certificate also shall be
executed by such Person, and such Person shall, in such certificate,
specifically assume the obligations of such successor or purchasing Person and
acknowledge its obligations to issue such stock, securities, other property or
cash to Holders of the Warrants upon exercise thereof as provided above. The
provisions of this Section 2(b) similarly shall apply to successive
Transactions.
(c) Special Distributions. If the Holder so elects by sending a Special
Notice to the Company, in the event that the Company shall declare a dividend or
make any other distribution (including, without limitation, in cash, in capital
stock (which shall include, without limitation, any options, warrants or other
rights to acquire capital stock) of the Company, whether or not pursuant to a
stockholder rights plan, "poison pill" or similar arrangement (but excluding any
dividend or distribution which results in an adjustment to the Exercise Price
pursuant to Section 2(a)) in other property or assets, to holders of Common
Stock (a "Special Distribution"), then the Board of Directors shall set aside
the amount of such dividend or distribution that any Holder of Warrants would
have been entitled to receive had it exercised such Warrants prior to the record
date for such dividend or distribution. Upon the exercise of a Warrant evidenced
hereby, the Holder shall be entitled to receive such dividend or distribution
that such Holder would have received had such Warrant been exercised immediately
prior to the record date for such dividend or distribution. Prior to any Special
Distribution described in this Section 2(c), the Company shall as provided in
Section 3 hereof notify each Holder (not less than ten (10) Business Days prior
to the occurrence of each Special Distribution) of its intent to make such
Special Distribution, and the Holder, if it elects to have the amount of such
distribution set aside rather than have an adjustment to the Exercise Price as
provided in Section 2(a), shall notify the Company by sending a Special Notice
prior to the date of any such Special Distribution.
Section 3. Notice of Certain Events. In case at any time or from time
to time the Company shall declare any dividend or any other distribution to the
holders of its Common Stock, or shall authorize the granting to the holders of
its Common Stock of rights or warrants to subscribe for or purchase any
additional shares of stock of any class or any other right, or shall authorize
the issuance or sale of any other shares or rights which would result in an
adjustment to the Exercise Price pursuant to Section 2(a) or would result in a
Special Distribution pursuant to Section 2(c), or there shall be any capital
reorganization or reclassification of the Common Stock or consolidation or
merger of the Company with or into another Person, or any sale or other
disposition of all or substantially all the assets of the Company, or there
shall be a voluntary or involuntary dissolution, liquidation or
<PAGE>
10
winding up of the Company, then, in any one or more of such cases the Company
shall mail to each Holder of the Warrants evidenced hereby at such Holder's
address as it appears on the transfer books of the Company, as promptly as
practicable but in any event at least ten (10) days prior to the applicable date
hereinafter specified, a notice stating (a) the date on which a record is to be
taken for the purpose of such dividend, distribution, rights or warrants or, if
a record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, rights or warrants are to
be determined, (b) the issue date of such dividend, distribution, rights or
warrants or (c) the date on which such reclassification, consolidation, merger,
sale, conveyance, dissolution, liquidation or winding up is expected to become
effective; provided that in the case of any event to which Section 2(c) applies,
the Company shall give at least ten (10) Business Days' prior written notice as
aforesaid. Such notice also shall specify the date as of which it is expected
that the holders of Common Stock of record shall be entitled to exchange their
Common Stock for shares of stock or other securities or property or cash
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, conveyance, dissolution, liquidation or winding up.
Section 4. Certain Covenants. The Company covenants and agrees that all
shares of capital stock of the Company which may be issued upon the exercise of
the Warrants evidenced hereby will be duly authorized, validly issued and fully
paid and nonassessable. The Company shall at all times reserve and keep
available for issuance upon the exercise of the Warrants, such number of its
authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the exercise of all outstanding Warrants, and shall take
all action required to increase the authorized number of shares of Common Stock
if at any time there shall be insufficient authorized but unissued shares of
Common Stock to permit such reservation or to permit the exercise of all
outstanding Warrants. The Company shall prepare and file, and cooperate with the
Holder of this Warrant so that it may prepare and file, in each case within five
(5) Business Days of a request by such Holder, notification and report forms in
compliance with the HSR Act, and shall otherwise fully comply with the
requirements of the HSR Act, to the extent required in connection with the
exercise of the Warrant. The Company shall bear all of its own expenses and all
of its own out-of-pocket expenses (including reasonable attorneys' fees, charges
and expenses) and filing fees of such Holder in connection with any such
preparation and filing.
Section 5. Registered Holder. The person in whose name this Warrant
Certificate is registered shall be deemed the owner hereof and of the Warrants
evidenced hereby for all purposes. The registered Holder of this Warrant
Certificate, in its capacity as such, shall not be entitled to any rights
whatsoever as a stockholder of the Company, except as herein provided.
Section 6. Transfer of Warrants. Any transfer of the rights represented
by this Warrant Certificate shall be subject to the limitations provided
<PAGE>
11
herein, and shall be effected by the surrender of this Warrant Certificate,
along with the form of assignment attached hereto, properly completed and
executed by the registered Holder hereof, at the principal executive office of
the Company in the United States of America, together with an appropriate
investment letter, if deemed reasonably necessary by counsel to the Company to
assure compliance with applicable securities laws. Thereupon, the Company shall
issue in the name or names specified by the registered Holder hereof and, in the
event of a partial transfer, in the name of the registered Holder hereof, a new
Warrant Certificate or Certificates evidencing the right to purchase such number
of shares of Common Stock as shall be equal to the number of shares of Common
Stock then purchasable hereunder.
Section 7. Denominations. The Company will, at its expense, promptly
upon surrender of this Warrant Certificate at the principal executive office of
the Company in the United States of America, execute and deliver to the
registered Holder hereof a new Warrant Certificate or Certificates in
denominations specified by such Holder for an aggregate number of Warrants equal
to the number of Warrants evidenced by this Warrant Certificate.
Section 8. Replacement of Warrants. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant Certificate and, in the case of loss, theft or destruction, upon
delivery of an indemnity reasonably satisfactory to the Company (in the case of
an insurance company or other institutional investor, its own unsecured
indemnity agreement shall be deemed to be reasonably satisfactory), or, in the
case of mutilation, upon surrender and cancellation thereof, the Company will
issue a new Warrant Certificate of like tenor for a number of Warrants equal to
the number of Warrants evidenced by this Warrant Certificate.
Section 9. Governing Law. THIS WARRANT CERTIFICATE SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED
BY, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE.
Section 10. Rights Inure to Registered Holder. The Warrants evidenced
by this Warrant Certificate will inure to the benefit of and be binding upon the
registered Holder thereof and the Company and their respective successors and
permitted assigns. Nothing in this Warrant Certificate shall be construed to
give to any Person other than the Company and the registered Holder thereof any
legal or equitable right, remedy or claim under this Warrant Certificate, and
this Warrant Certificate shall be for the sole and exclusive benefit of the
Company and such registered Holder. Nothing in this Warrant Certificate shall be
construed to give the registered Holder hereof any rights as a Holder of shares
of Common Stock until such time, if any, as the Warrants evidenced by this
Warrant Certificate are exercised in accordance with the provisions hereof.
<PAGE>
12
Section 11. Definitions. Capitalized terms used herein but not
otherwise defined have the meanings given to them in the Securities Purchase
Agreement. For the purposes of this Warrant Certificate, the following terms
shall have the meanings indicated below:
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in the City of New York are authorized or required by
law or executive order to close.
"Capital stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock (or equivalent ownership interests in a Person not a corporation)
whether now outstanding or hereafter issued, including, without limitation, all
common stock and preferred stock and any rights, warrants or options to purchase
such Person's capital stock.
"Company Securities" has the meaning assigned such term in Section
2(a).
"Conversion Price" shall have the meaning set forth in, and as adjusted
from time to time pursuant to the terms of, the Certificate of Designation with
respect to the Series B Preferred Stock as filed on July 10, 1998 with the
Secretary of State of the State of Delaware.
"Convertible Securities" has the meaning assigned such term in Section
2(a).
"Employee Securities" has the meaning assigned to such term in Section
2(a).
"Exercise Price" has the meaning assigned to such term in the Preamble.
"Fair Market Value" means the amount which a willing buyer, under no
compulsion to buy, would pay a willing seller, under no compulsion to sell, in
an arm's-length transaction.
"GAAP" means generally accepted United States accounting principles in
effect from time to time.
"Holder" has the meaning assigned to such term in the Preamble.
<PAGE>
13
"HSR Act" means the Hart-Scott-Rodino Anti-Trust Improvements Act of
1976, as amended and the rules and regulations of the Federal Trade Commission
promulgated thereunder.
"Issue Date" means July 10, 1998.
"Market Price" means the last reported sale price of the applicable
security as reported by the National Association of Securities Dealers, Inc.
Automatic Quotations System, National Market System, or, if the applicable
security is listed or admitted for trading on a securities exchange, the last
reported sales price of the applicable security on the principal exchange on
which the applicable security is listed or admitted for trading (which shall be
for consolidated trading if applicable to such exchange), or if neither so
reported or listed or admitted for trading, the last reported bid price of the
applicable security in the over-the-counter market. In the event that the Market
Price cannot be determined as aforesaid, the Board of Directors of the Company
shall determine the Market Price on the basis of such quotations as it in good
faith considers appropriate, in consultation with a nationally recognized
investment bank. The Market Price shall be such price averaged over a period of
20 consecutive Business Days ending 2 days prior to the day as of which "Market
Price" is being determined.
"Number Issuable" has the meaning assigned to such term in the
Preamble.
"Officers/Directors Securities" has the meaning assigned to such term
in Section 2(a).
"Person" means any individual, corporation, limited liability company,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, government (or an agency or political subdivision thereof)
or other entity of any kind.
"Securities Purchase Agreement" shall mean that certain Securities
Purchase Agreement, dated as of June 30, 1998, among the Company, the Holder and
the other parties signatory thereto, as the same may be amended, modified or
otherwise supplemented from time to time in accordance with its terms.
"Series A Preferred Stock" means the Series A Cumulative Convertible
Preferred Stock, par value $.01 per share, of the Company.
"Series B Preferred Stock" means the Series B Cumulative Convertible
Preferred Stock, par value $.01 per share, of the Company.
<PAGE>
14
"Special Notice" means the notice sent by a Holder to the Company
indicating its preference to have any special distribution set aside for its
benefit upon exercise of the Warrant.
"Transaction" has the meaning assigned to such term in Section 2(b).
"Warrant Exercise Documentation" has the meaning assigned to such term
in Section 1 hereof.
"Warrant Expiration Date" means the seventh anniversary of the Issue
Date or such earlier date as may result from the provisions of this Warrant
Certificate.
Section 12. Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, courier
services or personal delivery, (a) if to the Holder of a Warrant, at such
Holder's last known address appearing on the books of the Company; and (b) if to
the Company, at its principal executive office in the United States located at
the address designated for notices in the Securities Purchase Agreement, or such
other address as shall have been furnished to the party given or making such
notice, demand or other communication. All such notices and communications shall
be deemed to have been duly given: when delivered by hand, if personally
delivered; when delivered to a courier if delivered by commercial overnight
courier service; and five (5) Business Days after being deposited in the mail,
postage prepaid, if mailed.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed as of the Issue Date.
CANDLEWOOD HOTEL COMPANY, INC.
By:
--------------------------
Name:
Title:
<PAGE>
15
Form of Assignment Form
[To be executed upon assignment of Warrants]
The undersigned hereby assigns and transfers this Warrant
Certificate to ____________________ whose Social Security Number or Tax ID
Number is _________________ and whose record address is
_____________________________________, and irrevocably appoints ________________
as agent to transfer this security on the books of the Company. Such agent may
substitute another to act for such agent.
Signature:
------------------------------------
Signature Guarantee:
------------------------------------
Date: ___________________________
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED,
QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS AND NEITHER THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY AUTHORITY HAS
PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES.
WARRANT NO. ___
WARRANT
TO PURCHASE SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE
OF
CANDLEWOOD HOTEL COMPANY, INC.
THIS IS TO CERTIFY THAT [ ] or its registered assigns (the "HOLDER"),
is the owner of [ ] Warrants (the "WARRANTS"), each of which entitles the
registered Holder thereof to purchase from CANDLEWOOD HOTEL COMPANY, INC., a
Delaware corporation (the "COMPANY"), one fully paid, duly authorized and
nonassessable share of Common Stock, par value $.01 per share (the "COMMON
STOCK"), of the Company (subject to adjustment as provided herein) at any time
or from time to time at an exercise price of $.01 per share (the "EXERCISE
PRICE"), all on the terms and subject to the conditions hereinafter set forth.
The number of shares of Common Stock issuable upon exercise of each
Warrant, which is initially one (1) share, is subject to adjustment from time to
time pursuant to the provisions of Section 2 of this Warrant.
Capitalized terms used herein but not otherwise defined shall have the
meanings given them in Section 11 hereof or, if not therein defined, in the
Securities Purchase Agreement.
<PAGE>
2
Section 1. Exercise of Warrant. Subject to the last paragraph of this
Section 1, the Warrants evidenced hereby may be exercised, in whole or in part,
by the registered Holder hereof at any time or from time to time, upon delivery
to the Company at the principal executive office of the Company in the United
States of America, of (a) this warrant certificate (the "Warrant Certificate"),
(b) a written notice stating that such Holder elects to exercise the Warrants
evidenced hereby in accordance with the provisions of this Section 1 and
specifying the number of Warrants being exercised and the name or names in which
such Holder wishes the certificate or certificates for shares of Common Stock to
be issued and (c) payment of the Exercise Price for the shares of Common Stock
issuable upon exercise of such Warrants, which shall be payable by any one or
any combination of the following: (i) cash, (ii) certified or official bank
check payable to the order of the Company, (iii) by the surrender (which
surrender shall be evidenced by cancellation of the number of Warrants
represented by any Warrant certificate presented in connection with a Cashless
Exercise (as defined below)) of a Warrant or Warrants (represented by one or
more relevant Warrant certificates), and without the payment of the Exercise
Price in cash, in return for the delivery to the surrendering holder of such
number of shares of Common Stock equal to the number of shares of Common Stock
for which such Warrant is exercisable as of the date of exercise (if the
Exercise Price were being paid in cash) reduced by that number of shares of
Common Stock equal to the quotient obtained by dividing (x) the Exercise Price
by (y) the Market Price of one share of Common Stock on the Business Day which
next precedes the day of exercise of the Warrant or (iv) by the delivery of
shares of Common Stock that are either held by the Holder or are acquired in
connection with such exercise, and without payment of the Exercise Price in
cash. Any share of Common Stock delivered as payment of the Exercise Price in
connection with an In-Kind Exercise (as defined below) shall be deemed to have a
value equal to the Market Price of one share of Common Stock on the Business Day
which next precedes the day of exercise of the Warrant. An exercise of a Warrant
in accordance with clause (iii) is herein referred to as a "CASHLESS EXERCISE"
and an exercise of a Warrant in accordance with clause (iv) is herein referred
to as an "IN-KIND EXERCISE." The documentation and consideration, if any,
delivered in accordance with subsections (a), (b) and (c) are collectively
referred to herein as the "WARRANT EXERCISE DOCUMENTATION". For the purposes of
this Section 1, Market Price shall be calculated without reference to the last
sentence of the definition thereof.
As promptly as practicable, and in any event within five (5) Business
Days after receipt of the Warrant Exercise Documentation, the Company shall
deliver or cause to be delivered (a) certificates representing the number of
validly issued, fully paid and nonassessable shares of Common Stock issuable in
connection with such exercise, (b) if applicable, cash in lieu of any fraction
of a share, as hereinafter provided and (c) if less than the full number of
Warrants evidenced hereby are being exercised, a new Warrant Certificate or
Certificates, of like tenor, for the number of
<PAGE>
3
Warrants evidenced by this Warrant Certificate, less the number of Warrants then
being exercised. Such exercise shall be deemed to have been made at the close of
business on the date of delivery of the Warrant Exercise Documentation so that
the Person entitled to receive shares of Common Stock upon such exercise shall
be treated for all purposes as having become the record Holder of such shares of
Common Stock at such time. No such surrender shall be effective to constitute
the person entitled to receive such shares as the record Holder thereof while
the transfer books of the Company for the Common Stock are closed for any
purpose (but not for any period in excess of five (5) days); but any such
surrender of this Warrant Certificate for exercise during any period while such
books are so closed shall become effective for exercise immediately upon the
reopening of such books, as if the exercise had been made on the date this
Warrant Certificate was surrendered and for the number of shares of Common Stock
specified in the Warrant Exercise Documentation and at the Exercise Price.
The Company shall pay all expenses in connection with, and all taxes
and other governmental charges (other than income taxes of the Holder) that may
be imposed in respect of, the issue or delivery of any shares of Common Stock
issuable upon the exercise of the Warrants evidenced hereby. The Company shall
not be required, however, to pay any tax or other charge imposed in connection
with any transfer involved in the issue of any certificate for shares of Common
Stock in any name other than that of the registered Holder of the Warrants
evidenced hereby, and the Company shall not be required to issue or deliver such
Warrant Certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
In connection with the exercise of any Warrants evidenced hereby, no
fractions of shares of Common Stock shall be issued, but in lieu thereof the
Company shall pay a cash adjustment in respect of such fractional interest in an
amount equal to such fractional interest multiplied by the current Market Price
per share of Common Stock on the Business Day which next precedes the day of
exercise. If more than one such Warrant shall be exercised by the Holder thereof
at the same time, the number of full shares of Common Stock issuable on such
exercise shall be computed on the basis of the total number of Warrants so
exercised.
Section 2. Adjustments. The number of shares of Common Stock issuable
upon exercise of each Warrant shall be subject to adjustment from time to time
as follows:
(a) Stock Dividends; Stock Splits; Reserve Stock Splits;
Reclassifications. In case the Company shall (i) pay a dividend or make any
other distribution with respect to its Common Stock in shares of any class or
series of its
<PAGE>
4
capital stock, (ii) subdivide its outstanding Common Stock, (iii) combine its
outstanding Common Stock into a smaller number of shares or (iv) issue any
shares of its capital stock in a reclassification of the Common Stock (other
than a reclassification in connection with a merger, consolidation or other
business combination which will be governed by Section 2(g)), the number of
shares of Common Stock purchasable upon exercise of each Warrant immediately
prior to the record date for such dividend or distribution or the effective date
of such subdivision, combination or reclassification shall be adjusted so that
the Holder of each Warrant shall be entitled to receive the kind and number of
shares of Common Stock or other securities of the Company which such Holder
would have been entitled to receive after the happening of any of the events
described above had such Warrant been exercised immediately prior to the
happening of such event or any record date with respect thereto (with any record
date requirement being deemed to have been satisfied). An adjustment made
pursuant to this Section 2(a) shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event.
(b) Rights, Options; Warrants. In case the Company shall issue
rights, options, warrants or convertible or exchangeable securities (a "RIGHT")
(other than a convertible or exchangeable security subject to Section 2(a)) to
all holders of its Common Stock, entitling them to subscribe for or purchase
Common Stock at a price per share of Common Stock (determined in the case of
such rights, options, warrants or convertible or exchangeable securities, by
dividing (x) the total amount receivable by the Company in consideration of the
issuance of such rights, options, warrants or convertible or exchangeable
securities, if any, plus the total consideration payable to the Company upon
exercise, conversion or exchange thereof, by (y) the total number of shares of
Common Stock covered by such rights, options, warrants or convertible or
exchangeable securities) which is lower (at the record date for such issuance)
than the then Market Value per share of Common Stock, the number of shares of
Common Stock thereafter purchasable upon exercise of each Warrant shall be
determined by multiplying the number of shares of Common Stock theretofore
purchasable upon exercise of each Warrant by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior to
the issuance of such rights, options, warrants or convertible or exchangeable
securities plus the number of additional shares of Common Stock offered for
subscription or purchase or issuable upon conversion or exchange, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such rights, options, warrants or
convertible or exchangeable securities plus the number of shares which the
aggregate offering price of the total number of shares of Common Stock so
offered would purchase at the then Market Value per share of Common Stock. Such
adjustment shall be made whenever such rights, options, warrants or convertible
or exchangeable securities are issued, and shall become effective retroactively
immediately after the record date for the
<PAGE>
5
determination of shareholders entitled to receive such rights, options, warrants
or convertible or exchangeable securities.
(c) Issuance of Common Stock at Lower Values. In case the
Company shall sell or issue any shares of Common Stock or Right (excluding (i)
any Right issued in any of the transactions described in Section 2(a) or (b)
above and (ii) any Company Securities (as defined below)), at a price per share
of Common Stock (determined in the case of such rights, options, warrants or
convertible or exchangeable securities, by dividing (x) the total amount
receivable by the Company in consideration of the issuance of such rights,
options, warrants or convertible or exchangeable securities, if any, plus the
total consideration payable to the Company upon exercise, conversion or exchange
thereof, by (y) the total number of shares of Common Stock covered by such
rights, options, warrants or convertible or exchangeable securities) which is
lower (at the record date of such issuance) than the Market Value per share of
Common Stock, then the number of shares of Common Stock thereafter purchasable
upon the exercise of each Warrant shall be determined by multiplying the number
of shares of Common Stock theretofore purchasable upon exercise of such Warrant
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately after such sale or issuance and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such sale or issuance plus the number of shares of Common Stock which
the aggregate consideration received (determined as provided below) for such
sale or issuance would purchase at such Market Value per share of Common Stock.
For purposes of this Section 2(c), the shares of Common Stock which the holder
of any such Right shall be entitled to subscribe for or purchase shall be deemed
to be issued and outstanding as of the date of such sale and issuance and the
consideration received by the Company therefor shall be deemed to be the
consideration received by the Company for such Right, plus the consideration or
premiums stated in such Right to be paid for the shares of Common Stock covered
thereby. For the purposes of this Section 2(c), "COMPANY SECURITIES" shall
include (x) the issuance of any rights to subscribe for or to purchase, or any
options for the purchase of, up to 1.5% of the fully diluted shares of Common
Stock of the Company as of the date of original issuance of shares of Series B
Cumulative Convertible Preferred Stock, par value $.01 per share, of the Company
or any stock or securities convertible into or exchangeable for Common Stock to
officers or directors and (y) the issuance of any options for the purchase of
Common Stock to employees of the Company other than officers or directors
pursuant to the standard option awards program adopted by the Board of Directors
of the Company, but excluding any discretionary awards outside of such program;
provided, that all Common Stock issuable with respect to any such Company
Securities be issuable at or above the Market Price as of the date of the grant.
<PAGE>
6
(d) Distributions of Debt, Assets, Subscription Rights or
Convertible Securities. In case the Company shall fix a record date for the
making of a distribution to all holders of its Common Stock of evidences of its
indebtedness, assets, cash dividends or distributions (excluding dividends or
distributions referred to in Section 2(a) above and excluding distributions in
connection with the dissolution, liquidation or winding up of the Company which
will be governed by Section 2(g)(B) below) or securities (excluding those
referred to in Section 2(a), Section 2(b) or Section 2(c) above), then in each
case the number of shares of Common Stock purchasable after such record date
upon the exercise of each Warrant shall be determined by multiplying the number
of shares of Common Stock purchasable upon the exercise of such Warrant
immediately prior to such record date by a fraction, the numerator of which
shall be the Market Value per share of Common Stock immediately prior to the
record date for such distribution and the denominator of which shall be the
Market Value per share of Common Stock immediately prior to the record date for
such distribution less the then fair value (as determined in good faith by the
Board of Directors of the Company) of the portion of the assets, evidence of
indebtedness, cash dividends or distributions or securities so distributed
applicable to one share of Common Stock. Such adjustment shall be made whenever
any such distribution is made, and shall become effective on the date of
distribution retroactive to the record date for the determination of
shareholders entitled to receive such distribution.
(e) Expiration of Rights, Options and Conversion Privileges.
Upon the expiration of any rights, options, warrants or conversion or exchange
privileges that have previously resulted in an adjustment hereunder, if any
thereof shall not have been exercised, the number of shares of Common Stock
issuable upon the exercise of each Warrant shall, upon such expiration, be
readjusted and shall thereafter, upon any future exercise, be such as they would
have been had they been originally adjusted (or had the original adjustment not
been required, as the case may be) as if (i) the only shares of Common Stock so
issued were the shares of Common Stock, if any, actually issued or sold upon the
exercise of such rights, options, warrants or conversion or exchange rights and
(ii) such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise plus the
consideration, if any, actually received by the Company for issuance, sale or
grant of all such rights, options, warrants or conversion or exchange rights
whether or not exercised; provided, that no such readjustment shall have the
effect of decreasing the number of shares issuable upon exercise of each Warrant
by a number, in excess of the amount or number of the adjustment initially made
in respect to the issuance, sale or grant of such rights, options, warrants or
conversion or exchange rights.
(f) De Minimis Adjustments. No adjustment in the number of
shares of Common Stock purchasable hereunder shall be required unless such
<PAGE>
7
adjustment would require an increase or decrease of at least one percent (1%) in
the number of shares of Common Stock purchasable upon the exercise of each
Warrant; provided, however, that any adjustments which by reason of this Section
2(f) are not required to be made shall be carried forward and taken into account
in any subsequent adjustment. All calculations shall be made to the nearest
one-thousandth of a share.
(g) Consolidation, Merger, Etc. (A) Subject to the provisions
of Subsection (B) below of this Section 2(g), in case of the consolidation of
the Company with, or merger of the Company with or into, or of the sale of all
or substantially all of the properties and assets of the Company to, any Person
and in connection therewith consideration is payable to holders of Common Stock
(or other securities or property purchasable upon exercise of Warrants) in
exchange therefor, the Warrants shall remain subject to the terms and conditions
set forth in this Warrant Certificate and each Warrant shall, after such
consolidation, merger or sale, entitle the Holder to receive upon exercise the
number of shares of capital stock or other securities or properties (including
cash) of the Company, or of such Person resulting from such consolidation or
surviving such merger or to which such sale shall be made, as the case may be,
that would have been distributable or payable on account of the shares of Common
Stock (or other securities or properties purchasable upon exercise of Warrants)
if such Holder's Warrants had been exercised immediately prior to such merger,
consolidation or sale (or, if applicable, the record date therefor); and in any
such case the provisions of this Warrant with respect to the rights and
interests thereafter of the Holders of Warrants shall be appropriately adjusted
by the Board of Directors of the Company in good faith so as to be applicable,
as nearly as may reasonable be, to any shares of stock or other securities or
any property thereafter deliverable on the exercise of the Warrants.
(B) Notwithstanding the foregoing, (x) if the Company merges or consoli
dates with, or sells all or substantially all of its property and assets to,
another Person and consideration is payable to holders of Common Stock in
exchange for their Common Stock in connection with such merger, consolidation or
sale which consists solely of cash, or (y) in the event of the dissolution,
liquidation or winding up of the Company, then the Holders of Warrants shall be
entitled to receive distributions on the date of such event on an equal basis
with holders of Common Stock (or other securities issuable upon exercise of the
Warrants) as if the Warrants had been exercised immediately prior to such event,
less the Exercise Price. Upon receipt of such payment, if any, the right of a
Holder shall terminate and cease and such Holder's Warrants shall expire.
(h) In addition to the foregoing adjustments, the Board of
Directors of the Company may make any other adjustment to increase the number of
shares of Common Stock or other securities or property issuable upon exercise of
Warrants as it may, in good faith, deem desirable to protect the rights and
benefits of
<PAGE>
8
Holders. In addition, the Company may from time to time increase the number of
shares of Common Stock or other securities or property issuable upon exercise of
Warrants, provided that any such increase must be effective for at least 30
calendar days, and must be preceded by written notice of such increase to the
Holders, which notice must be mailed at least 30 calendar days prior to the
effective date of such increase. Any such increase shall not alter or adjust the
Exercise Price.
Section 3. Notice of Certain Events. In case at any time or from time
to time the Company shall declare any dividend or any other distribution to the
holders of its Common Stock, or shall authorize the granting to the holders of
its Common Stock of rights or warrants to subscribe for or purchase any
additional shares of stock of any class or any other right, or shall authorize
the issuance or sale of any other shares or rights which would result in an
adjustment pursuant to Section 2, or there shall be any capital reorganization
or reclassification of the Common Stock or consolidation or merger of the
Company with or into another Person, or any sale or other disposition of all or
substantially all the assets of the Company, or there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Company, then, in any
one or more of such cases the Company shall mail to each Holder of the Warrants
evidenced hereby at such Holder's address as it appears on the transfer books of
the Company, as promptly as practicable but in any event at least ten (10) days
prior to the applicable date hereinafter specified, a notice stating (a) the
date on which a record is to be taken for the purpose of such dividend,
distribution, rights or warrants or, if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled to such dividend,
distribution, rights or warrants are to be determined, (b) the issue date of
such dividend, distribution, rights or warrants or (c) the date on which such
reclassification, consolidation, merger, sale, conveyance, dissolution,
liquidation or winding up is expected to become effective. Such notice also
shall specify the date as of which it is expected that the holders of Common
Stock of record shall be entitled to exchange their Common Stock for shares of
stock or other securities or property or cash deliverable upon such
reorganization, reclassification, consolidation, merger, sale, conveyance,
dissolution, liquidation or winding up.
Section 4. Certain Covenants. The Company covenants and agrees that all
shares of capital stock of the Company which may be issued upon the exercise of
the Warrants evidenced hereby will be duly authorized, validly issued and fully
paid and nonassessable. The Company shall at all times reserve and keep
available for issuance upon the exercise of the Warrants, such number of its
authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the exercise of all outstanding Warrants, and shall take
all action required to increase the authorized number of shares of Common Stock
if at any time there shall be insufficient authorized but unissued shares of
Common Stock to permit such reservation or to permit the exercise of all
outstanding Warrants. The Company shall
<PAGE>
9
prepare and file, and cooperate with the Holder of this Warrant so that it may
prepare and file, in each case within five (5) Business Days of a request by
such Holder, notification and report forms in compliance with the HSR Act, and
shall otherwise fully comply with the requirements of the HSR Act, to the extent
required in connection with the exercise of the Warrant. The Company shall bear
all of its own expenses and all of its own out-of-pocket expenses (including
reasonable attorneys' fees, charges and expenses) and filing fees of such Holder
in connection with any such preparation and filing.
Section 5. Registered Holder. The person in whose name this Warrant
Certificate is registered shall be deemed the owner hereof and of the Warrants
evi denced hereby for all purposes. The registered Holder of this Warrant
Certificate, in its capacity as such, shall not be entitled to any rights
whatsoever as a stockholder of the Company, except as herein provided.
Section 6. Transfer of Warrants. Any transfer of the rights represented
by this Warrant Certificate shall be subject to the limitations provided herein,
and shall be effected by the surrender of this Warrant Certificate, along with
the form of assignment attached hereto, properly completed and executed by the
registered Holder hereof, at the principal executive office of the Company in
the United States of America, together with an appropriate investment letter, if
deemed reasonably necessary by counsel to the Company to assure compliance with
applicable securities laws. Thereupon, the Company shall issue in the name or
names specified by the registered Holder hereof and, in the event of a partial
transfer, in the name of the registered Holder hereof, a new Warrant Certificate
or Certificates evidencing the right to purchase such number of shares of Common
Stock as shall be equal to the number of shares of Common Stock then purchasable
hereunder.
Section 7. Denominations. The Company will, at its expense, promptly
upon surrender of this Warrant Certificate at the principal executive office of
the Company in the United States of America, execute and deliver to the
registered Holder hereof a new Warrant Certificate or Certificates in
denominations specified by such Holder for an aggregate number of Warrants equal
to the number of Warrants evidenced by this Warrant Certificate.
Section 8. Replacement of Warrants. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant Certificate and, in the case of loss, theft or destruction, upon
delivery of an indemnity reasonably satisfactory to the Company (in the case of
an insurance company or other institutional investor, its own unsecured
indemnity agreement shall be deemed to be reasonably satisfactory), or, in the
case of mutilation, upon surrender and cancellation thereof, the Company will
issue a new Warrant Certificate of like
<PAGE>
10
tenor for a number of Warrants equal to the number of Warrants evidenced by this
Warrant Certificate.
Section 9. Governing Law. THIS WARRANT CERTIFICATE SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED
BY, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE.
Section 10. Rights Inure to Registered Holder. The Warrants evidenced
by this Warrant Certificate will inure to the benefit of and be binding upon the
registered Holder thereof and the Company and their respective successors and
permitted assigns. Nothing in this Warrant Certificate shall be construed to
give to any Person other than the Company and the registered Holder thereof any
legal or equitable right, remedy or claim under this Warrant Certificate, and
this Warrant Certificate shall be for the sole and exclusive benefit of the
Company and such registered Holder. Nothing in this Warrant Certificate shall be
construed to give the registered Holder hereof any rights as a Holder of shares
of Common Stock until such time, if any, as the Warrants evidenced by this
Warrant Certificate are exercised in accordance with the provisions hereof.
Section 11. Definitions. Capitalized terms used herein but not
otherwise defined have the meanings given to them in the Securities Purchase
Agreement. For the purposes of this Warrant Certificate, the following terms
shall have the meanings indicated below:
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in the City of New York are authorized or required by
law or executive order to close.
"Capital stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock (or equivalent ownership interests in a Person not a corporation)
whether now outstanding or hereafter issued, including, without limitation, all
common stock and preferred stock and any rights, warrants or options to purchase
such Person's capital stock.
"Cashless Exercise" has the meaning assigned to such term in Section 1.
"Company Securities" has the meaning assigned such term in Section
2(c).
<PAGE>
11
"Exercise Price" has the meaning assigned to such term in the Preamble.
"Fair Market Value" means the amount which a willing buyer,
under no compulsion to buy, would pay a willing seller, under no compulsion to
sell, in an arm's-length transaction.
"GAAP" means generally accepted United States accounting principles in
effect from time to time.
"Holder" has the meaning assigned to such term in the Preamble.
"HSR Act" means the Hart-Scott-Rodino Anti-Trust Improve ments Act of
1976, as amended and the rules and regulations of the Federal Trade Commission
promulgated thereunder.
"In-Kind Exercise" has the meaning assigned to such term in Section 1.
"Market Price" means the last reported sale price of the applica ble
security as reported by the National Association of Securities Dealers, Inc.
Auto matic Quotations System, National Market System, or, if the applicable
security is listed or admitted for trading on a securities exchange, the last
reported sales price of the applicable security on the principal exchange on
which the applicable security is listed or admitted for trading (which shall be
for consolidated trading if applicable to such exchange), or if neither so
reported or listed or admitted for trading, the last reported bid price of the
applicable security in the over-the-counter market. In the event that the Market
Price cannot be determined as aforesaid, the Board of Directors of the Company
shall determine the Market Price on the basis of such quotations as it in good
faith considers appropriate, in consultation with a nationally recognized
investment bank. The Market Price shall be such price averaged over a period of
20 consecutive Business Days ending 2 days prior to the day as of which "Market
Price" is being determined.
"Person" means any individual, corporation, limited liability company,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, government (or an agency or political subdivision thereof)
or other entity of any kind.
"Right" has the meaning assigned to such term in Section 2(b).
<PAGE>
12
"Securities Purchase Agreement" shall mean that certain Securities
Purchase Agreement, dated as of June 30, 1998, among the Company, the Holder and
the other parties signatory thereto, as the same may be amended, modified or
otherwise supplemented from time to time in accordance with its terms.
"Transaction" has the meaning assigned to such term in Section 2(b).
"Warrant Exercise Documentation" has the meaning assigned to such term
in Section 1 hereof.
Section 12. Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, courier
services or personal delivery, (a) if to the Holder of a Warrant, at such
Holder's last known address appearing on the books of the Company; and (b) if to
the Company, at its principal executive office in the United States located at
the address designated for notices in the Securities Purchase Agreement, or such
other address as shall have been furnished to the party given or making such
notice, demand or other communication. All such
<PAGE>
13
notices and communications shall be deemed to have been duly given: when
delivered by hand, if personally delivered; when delivered to a courier if
delivered by commercial overnight courier service; and five (5) Business Days
after being deposited in the mail, postage prepaid, if mailed.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed as of the ____ day of June, 1998.
CANDLEWOOD HOTEL COMPANY, INC.
By:
---------------------------
Name:
Title:
<PAGE>
14
Form of Assignment Form
[To be executed upon assignment of Warrants]
The undersigned hereby assigns and transfers this Warrant Certificate
to ____________________ whose Social Security Number or Tax ID Number is
_________________ and whose record address is _________________________________,
and irrevocably appoints ________________ as agent to transfer this security on
the books of the Company. Such agent may substitute another to act for such
agent.
Signature:
------------------------------------
Signature Guarantee:
------------------------------------
Date: ___________________________
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
This Amended and Restated Stockholders Agreement, dated as of July 10,
1998 (this "Agreement"), by and among Candlewood Hotel Company, Inc., a Delaware
corporation (the "Company"), Doubletree Corporation, a Delaware corporation
(together with its subsidiaries, "Doubletree"), the Warren D. Fix Family
Partnership, L.P., a Kansas limited partnership (the "Fix Partnership"), and
Jack P. DeBoer ("DeBoer"), on behalf of himself and as representative of the
Alexander John DeBoer Trust dated March 14, 1995 and the Christopher Scott
DeBoer Trust dated March 14, 1995 (collectively, the "Trusts") (collectively,
the "Initial Holders"), and each of the other entities set forth on the
signature pages hereto (collectively, the parties to this Agreement other than
the Company are referred to as the "Holders").
WITNESSETH:
WHEREAS, the Initial Holders had previously entered into that certain
Stockholders Agreement, dated as of September 30, 1996 (the "Original
Stockholders Agreement"), relating to the governance of the Company, including
procedures for the election of directors, the approval of certain significant
corporate actions and rights relating to the purchase of capital stock of the
Company;
WHEREAS, in connection with the issuance and sale of shares of Series A
Cumulative Convertible Preferred Stock, par value $.01 per share (the "Series A
Preferred Stock"), of the Company (the "Purchased Shares") pursuant to the Stock
Purchase Agreement, dated as of August 27, 1997 (the "Stock Purchase
Agreement"), among the Company and the other parties signatory thereto, the
Original Stockholders Agreement was terminated and the Company entered into the
Stockholders Agreement, dated as of September 22, 1997 (the "Second Stockholders
Agreement"), among the Company, the Initial Holders and the parties listed on
Schedule A thereto;
WHEREAS, the Company has agreed to issue and sell, and the Purchasers
(as defined in the Securities Purchase Agreement referred to below) have
severally agreed to purchase (i) shares of Series B Cumulative Convertible
Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), of
the Company and (ii) warrants exercisable to purchase initially 336,000 shares
of Common Stock at an initial exercise price of $12.00 per share (the
"Warrants," and, together with the Series B Preferred Stock, the "Series B
Securities") pursuant to the Securities Purchase Agreement, dated as of June 30,
1998 (the "Securities Purchase Agreement"), among the Company and the
Purchasers;
WHEREAS, it is a condition precedent to the obligation of the
Purchasers to purchase the Series B Securities pursuant to the Securities
Purchase Agreement that the parties hereto enter into this Agreement;
<PAGE>
2
WHEREAS, the Second Stockholders Agreement is being terminated
simultaneously with the execution of this Agreement and the parties hereto
hereby enter into this Agreement on the terms and subject to the conditions set
forth below;
NOW, THEREFORE, in consideration of the agreement of the Purchasers to
purchase the Series B Securities and for other good and valuable consideration
the receipt and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. All terms capitalized but not defined herein shall
have the meaning attributable to such terms in the Securities Purchase
Agreement, except where the context otherwise requires. The following additional
terms when used in this Agreement, including its preamble and recitals, shall,
except where the context otherwise requires, have the following meanings, such
meanings to be equally applicable to the singular and plural forms thereof:
"Affiliate" of a Holder means any Person, other than the Company,
controlling, controlled by or under common control with such Holder.
"Board" means the Board of Directors of the Company.
"Common Stock" means and includes the Company's currently authorized
common stock, par value $.01 per share.
"DeBoer/Fix Holders" means DeBoer, the Trusts and the Fix Partnership
(so long as each is a Holder) and each Permitted Transferee, other than the
Company, who becomes a Holder.
"DeBoer/Fix Shares" means the shares of Common Stock owned of record or
beneficially by DeBoer, the Trusts and the Fix Partnership on the Effective
Date.
"DeBoer Holders" means DeBoer and the Trusts (so long as each is a
Holder) and each Permitted Transferee of DeBoer, other than the Company, who
becomes a Holder.
"DeBoer Shares" means the shares of Common Stock owned of record or
beneficially by DeBoer and the Trusts on the Effective Date.
"Director" means a director of the Company.
<PAGE>
3
"Doubletree Holders" means Doubletree (so long as it is a Holder) and
each Permitted Transferee of Doubletree, other than the Company, who becomes a
Holder.
"Doubletree Shares" means the Shares of Common Stock owned of record or
beneficially by Doubletree on the Effective Date.
"Effective Date" means the date on which the Doubletree Shares, the
DeBoer Shares and the Fix Partnership Shares were issued to Doubletree, DeBoer,
the Trusts and the Fix Partnership.
"Fix Partnership Holders" means the Fix Partnership (so long as it is a
Holder) and each Permitted Transferee of the Fix Partnership, other than the
Company, who becomes a Holder.
"Fix Partnership Shares" means the shares of Common Stock owned of
record or beneficially by the Fix Partnership on the Effective Date.
"Holder" shall have the meaning set forth in the preamble hereto.
"Initial Holder" means a record or beneficial owner of any Subject
Shares.
"Permitted Transferee" of a Holder means (i) a successor to such Holder
by operation of law pursuant to a statutory merger, consolidation, dissolution
or liquidation, (ii) a purchaser of all or substantially all of such Holder's
assets, (iii) a Person owning, directly or indirectly, a majority of the voting
interests or other comparable equity interests of such Holder, a Person under
common control with such Person (including, in the case of an individual, a
family member or a trust controlled by a family member) or a Person of which
such Holder owns, directly or indirectly, a majority of the outstanding voting
securities or other comparable equity interests, (iv) a successor to such Holder
by will or through the laws of descent, or through a gift or other contribution
made in anticipation of the death of such Holder or (v) as to any Series A
Preferred Stock or Series A Share Equivalent, any transferee permitted by the
terms of the Stock Purchase Agreement and as to any Series B Preferred Stock or
Series B Share Equivalent, any transferee permitted by the terms of the
Securities Purchase Agreement, in each case other than (x) a competitor in the
extended stay hotel business or (y) an entity owning more than 20% of the equity
securities of such competitor or represented on the board of directors of such
competitor, including in each case in connection with this clause (y),
Affiliates of such competitor; provided, however, that in each case the
successor, purchaser or Person referred to in clauses (i), (ii) or (iii) of this
definition was an Affiliate of such Holder prior to such merger, consolidation,
dissolution, liquidation, purchase of assets or acquisition of voting securities
or other comparable equity interests and, in each case referred to in clauses
(i), (ii), (iii), (iv) or (v) of this definition, the Permitted Transferee has
<PAGE>
4
become a party to and agreed to be bound by this Agreement as to all Subject
Shares, shares of Series A Preferred Stock, shares of Series A Share
Equivalents, shares of Series B Preferred Stock or shares of Series B Share
Equivalents then being transferred to it. "Permitted Transferee" includes
successive transferee in transactions described in the preceding sentence.
"Person" means and includes an individual, a corporation, a limited
liability company, an association, a partnership, a trust or estate, a
government or any department or agency thereof.
"Public Sale" means a sale of Subject Shares, Series A Share
Equivalents or Series B Share Equivalents pursuant to an effective registration
statement in accordance with the rules and regulations of the Securities and
Exchange Commission (the "Commission") or a sale pursuant to Rule 144 thereof.
"Securities Purchase Agreement" shall have the meaning set forth in the
third WHEREAS clause.
"Series A Preferred Holder" means each of the parties listed on
Schedule A-1 hereto (so long as it is a Holder) and each Permitted Transferee of
such Series A Preferred Holder, other than the Company, who becomes a Holder.
"Series A Preferred Stock" shall have the meaning set forth in the
second WHEREAS clause.
"Series A Purchaser Group" means (i) Olympus Growth Fund II, L.P. with
respect to one nominee for director of the Company, (ii) Desai Capital with
respect to one nominee for director of the Company and (iii) Pecks Management
with respect to one nominee for director of the Company (each a "Significant
Purchaser"), so long as such Significant Purchaser shall hold at least 20% of
the shares of Series A Preferred Stock or Series A Share Equivalents purchased
by such Significant Purchaser pursuant to the Stock Purchase Agreement, and, if
at any time such Significant Purchaser shall waive its rights hereunder or shall
hold less than 20% of the shares of Series A Preferred Stock or Series A Share
Equivalents purchased by such Significant Purchaser pursuant to the Stock
Purchase Agreement, the designee formerly designated by such Significant
Purchaser shall henceforth be designated by all of the Series A Preferred
Holders holding shares of Series A Preferred Stock or Series A Share
Equivalents.
"Series A Share Equivalents" of the Series A Preferred Stock means the
number of shares of Common Stock that are issued or issuable upon conversion of
the Series A Preferred Stock but excluding any shares sold in a Public Sale.
"Series B Purchaser Group" means the holders of at least a majority of
shares of Series B Preferred Stock or Series B Share Equivalents.
<PAGE>
5
"Series B Preferred Holder" means each of the parties listed on
Schedule A-2 hereto (so long as a Holder) and each Permitted Transferee of such
Series B Preferred Holder, other than the Company, who becomes a Holder.
"Series B Share Equivalents" of the Series B Preferred Stock or
Warrants means the number of shares of Common Stock that are issuable upon the
conversion of the Series B Preferred Stock or exercise of the Warrants but
excluding any shares sold in a Public Sale.
"Stock Purchase Agreement" shall have the meaning set forth in the
second WHEREAS clause.
"Subject Shares" means the Doubletree Shares, the DeBoer Shares and the
Fix Partnership Shares; provided, however, that at all times, such term shall
include all Subject Shares that have been transferred by a Holder to a Permitted
Transferee of such Holder. Notwithstanding the foregoing, upon (A) the
disposition of any Subject Shares pursuant to a Public Sale to any Person, or
(B) the disposition of any Subject Shares other than pursuant to a Public Sale
to any Person other than a Permitted Transferee of the Holder thereof, the
shares so canceled or disposed of shall cease to be Subject Shares and
thereafter shall not be subject to any of the terms and conditions of this
Agreement.
ARTICLE 2
VOTING AGREEMENT
2.1 Board Nominations. The Board of the Company shall be composed of at
least twelve (12) members plus, pursuant to clause (v) below, the President of
the Company; provided, that the Company and the Holders have agreed (i) that the
Series A Purchaser Group shall be entitled, through a nominating committee or
other procedure adopted by the Board, to designate for nomination by the Board
three (3) nominees for election to the Board, (ii) that the Series B Purchaser
Group shall be entitled, through a nominating committee or other procedure
adopted by the Board, to designate for nomination by the Board one (1) nominee
for election to the Board, (iii) that the Doubletree Holders shall be entitled,
through a nominating committee or other procedure adopted by the Board, to
designate for nomination by the Board two (2) nominees for election to the
Board, (iv) that the DeBoer/Fix Holders shall be entitled, through a nominating
committee or other procedure adopted by the Board, to designate for nomination
by the Board two (2) nominees for election to the Board and (v) that the
Doubletree Holders together with the DeBoer/Fix Holders shall be entitled,
through a nominating committee or other procedure adopted by the Board, to
designate for nomination by the Board the President of the Company and/or such
number of independent directors for election to the Board as shall constitute
the remainder of the Board.
<PAGE>
6
2.2 Board of Directors of the Company. (a) So long as it shall hold any
shares of Series A Preferred Stock, Series A Share Equivalents, Series B
Preferred Stock, Series B Share Equivalents or Subject Shares, each Holder
agrees to vote all of its shares of Series A Preferred Stock, Series A Share
Equivalents, Series B Preferred Stock, Series B Share Equivalents or Subject
Shares, as applicable, as to which it has voting rights for the election of all
directors nominated pursuant to the immediately preceding paragraph hereof. The
nominees designated by the Series A Preferred Holders and Series B Preferred
Holders shall be identified in a proxy statement delivered to the Company
stockholders in connection with an annual or special meeting.
(b) The Holders shall appear in person or by proxy at any
annual or special meeting of stockholders for the purpose of obtaining a quorum
and shall vote or cause the vote of the Series A Preferred Stock, Series A Share
Equivalents, Series B Preferred Stock, Series B Share Equivalents or Subject
Shares, as applicable, owned by such Holder or by any Affiliate of such Holder,
either in person or by proxy, to be cast in accordance with the provisions of
this Article 2.
(c) Each Holder further agrees to vote all the Series A
Preferred Stock, Series A Share Equivalents, Series B Preferred Stock, Series B
Share Equivalents or Subject Shares, as applicable, with respect to which it has
direct or indirect voting rights, in favor of removal from the Board, upon
notice by the DeBoer/Fix Holders, the Series A Purchaser Group, the Series B
Purchaser Group or the Doubletree Holders that an individual designated by them
pursuant to Section 2.1 should be removed, and to use its best efforts to cause
the Board to fill the vacancy so vacated with another person designated by the
party providing such notice. Each Holder further agrees to cooperate fully in
connection with the nomination of Directors, the voting of its shares of Series
A Preferred Stock, Series A Share Equivalents, Series B Preferred Stock, Series
B Share Equivalents or Subject Shares, as applicable, the execution of written
consents (if then permissible under the Certificate of Incorporation of the
Company), the calling of meetings and other stockholder matters to effect the
provisions of this Article.
(d) If any director is unable to serve, or once having
commenced to serve, is removed or withdraws from the Board, the party or parties
who designated such director will be entitled to designate a person to fill the
vacancy on the Board so created and each Holder will use its best efforts to
cause the Board to fill the vacancy so created with the person so designated, in
accordance with the Company's By-laws.
(e) Each Holder agrees not to and not to permit any Affiliate
to grant any proxy or enter into or be bound by any voting trust with respect to
its Series A Preferred Stock, Series A Share Equivalents, Series B Preferred
Stock, Series B Share Equivalents or Subject Shares, as applicable, or enter
into any arrangements of any kind with any person with respect to its Series A
Preferred
<PAGE>
7
Stock, Series A Share Equivalents, Series B Preferred Stock, Series B Share
Equivalents or Subject Shares, as applicable, in any such case in a manner that
is inconsistent with the provisions of this Agreement.
(f) The Company shall use its best efforts to cause the
nominees (unless, after customary investigation of such person's qualifications,
the Board of Directors reasonably determines in good faith that such person is
not qualified or acceptable under standards applied fairly and equally to all
nominees) of each of the Holders pursuant to the provisions of this Article 2 to
be included in the slate of nominees recommended by the Board to the Company's
stockholders for election as directors, and the Company shall use its best
efforts to cause the election of such nominees, including voting all shares for
which the Company holds proxies (unless otherwise directed by the stockholder
submitting such proxy) or is otherwise entitled to vote, in favor of the
election of such person.
(g) In the event that the Board establishes committees from
time to time, at least one of the nominees of the Series B Purchaser Group shall
have the right, upon the request of the Series B Purchaser Group, to serve on
each such committee, including, without limitation, on any audit committee or on
any compensation committee.
2.3 Holder Representation. Each Holder represents and warrants as to
itself that as of the date hereof (after giving effect to all transactions
occurring in connection with the sale of the Series B Preferred Stock and
Warrants pursuant to the Securities Purchase Agreement) such Holder is not a
party with any other Person to any agreement other than this Agreement and the
Registration Rights Agreement with respect to the holding, voting, acquisition
or disposition of shares of Series A Preferred Stock, Series A Share
Equivalents, Series B Preferred Stock, Series B Share Equivalents or Subject
Shares, as applicable.
2.4 Agent for Affiliated Holders. If a portion or all of the Subject
Shares held by Doubletree, DeBoer, the Trusts or the Fix Partnership shall be
transferred to one or more Permitted Transferees, resulting in the Subject
Shares which were theretofore held by such Holder being held by more than one
Holder, then Doubletree, DeBoer, the Trusts or the Fix Partnership, as the case
may be, shall: (i) act, or shall cause one of such Holders, to act, as agent and
proxy for all purposes of this Agreement (including without limitation the
voting of Subject Shares, the nomination of Directors, the giving of consents,
the approval of amendments, the receipt of notices, etc.) for all of the
Doubletree Holders, DeBoer Holders or the Fix Partnership Holders, as the case
may be, and (ii) specify in writing to the other parties that it (or such other
Holder) is to act as such agent and proxy, and thereafter the other parties
shall be entitled to look solely to, and to deal solely with, the person so
specified for all purposes of this Agreement as if such Holder held all the
Subject Shares held by the party providing such notice and its Permitted
Transferees.
<PAGE>
8
2.5 Irrevocable Proxy. The Fix Partnership Holders and the Trusts
hereby appoint DeBoer as its and their proxy to exercise in DeBoer's sole
discretion all rights of the Fix Partnership Holders and the Trusts to designate
persons for nomination, removal or the filling of vacancies and to exercise all
rights pursuant to Article 2 hereof. This proxy is coupled with an interest in
the Company and shall be irrevocable. Except as set forth below in this
paragraph, this proxy may be invoked by DeBoer at any time by notice to the
other Holders but, unless and until invoked, such rights may be exercised by the
Fix Partnership Holders and the Trusts; provided, however, that upon the death
of Warren D. Fix all such rights shall automatically vest in DeBoer which shall
thereafter have the sole right to exercise all such rights of the Fix
Partnership Holders. Notwithstanding the foregoing, this proxy may not be
invoked or exercised after the death of Jack DeBoer.
2.6 Termination. (a) The rights and obligations of any holder of Series
A Preferred Stock, Series A Share Equivalents, Series B Preferred Stock, Series
B Share Equivalents or Subject Shares pursuant to this Agreement shall terminate
(i) as to any Significant Purchaser, if such Significant Purchaser shall hold,
beneficially or of record, less than 20% of the shares of Series A Preferred
Stock or Series A Share Equivalents purchased by such Significant Purchaser
pursuant to the Stock Purchase Agreement, (ii) as to any rights (but not any
obligations) of any holder of Series A Preferred Stock or Series A Share
Equivalents, upon waiver of such rights in writing, (iii) as to any holder of
Series A Share Equivalents, upon transfer of such Series A Share Equivalents
pursuant to a Public Sale, (iv) as to all holders of Series A Preferred Stock or
Series A Share Equivalents, upon failure of such holders or their Permitted
Transferees, collectively, to hold, beneficially or of record, at least 20% of
the shares of Series A Preferred Stock or Series A Share Equivalents purchased
pursuant to the Stock Purchase Agreement, (v) as to any rights of any holder of
Series B Preferred Stock or Series B Share Equivalents, upon waiver of such
rights in writing, (vi) as to any holder of Series B Share Equivalents, upon
transfer of such Series B Share Equivalents pursuant to a Public Sale, (vii) as
to all holders of Series B Preferred Stock or Series B Share Equivalents, upon
failure of such holders or their Permitted Transferees, collectively, to hold,
beneficially or of record, at least 20% of the shares of Series B Preferred
Stock or Series B Share Equivalents purchased pursuant to the Securities
Purchase Agreement and (viii) as to the holders of the Doubletree Shares or the
DeBoer/Fix Shares, upon both the failure of such holders or their Permitted
Transferees, collectively, to hold, beneficially or of record, at least 20% of
the outstanding voting interests of the Company and the termination of the
rights of the Series A Preferred Holders and Series B Preferred Holders pursuant
to subsections (iv) and (vii) hereof.
(b) Each of the parties hereto hereby acknowledge and agree
that, as of the date hereof, the rights and obligations of those individuals
listed on Schedule A-3 hereto (the "Individual Investor Holders") under the
Second Stockholders Agreement shall be terminated and, except to the extent that
any such
<PAGE>
9
Individual Investor Holder is a Permitted Transferee of any other party hereto,
the Individual Investor Holders shall have no rights or obligations under this
Agreement.
ARTICLE 3
GENERAL PROVISIONS
3.1 Legend on Share Certificates. (a) All certificates for shares of
Series A Preferred Stock, Series A Share Equivalents, Series B Preferred Stock,
Series B Share Equivalents or Subject Shares which are subject to the terms and
provisions of Article 2, in addition to such other legends as may be required by
law, shall bear the legend set forth in Article VII of the Stock Purchase
Agreement or Article VII of the Securities Purchase Agreement, as applicable,
and the following legend:
The shares represented by this certificate are also subject to certain
requirements as to voting contained in the Amended and Restated
Stockholders Agreement, dated July 10, 1998, among the Company, and
certain stockholders, a copy of which is on file with the Secretary of
the Company.
(b) Upon the termination of this Agreement with respect to any
shares of Series A Preferred Stock, Series A Share Equivalents, Series B
Preferred Stock, Series B Share Equivalents or Subject Shares pursuant to
Section 2.6, each Holder shall be entitled to receive, in exchange for any
certificate bearing the legend described in subsection (a) of this Section 3.1,
a certificate only bearing the legend set forth in Article VII of the Stock
Purchase Agreement or Article VII of the Securities Purchase Agreement, as
applicable, unless the Company shall have determined (based upon advice of legal
counsel) that such legend is no longer required by law.
ARTICLE 4
MISCELLANEOUS
4.1 Injunctive Relief. It is acknowledged that it will be impossible to
measure in money the damages that would be suffered if the parties fail to
comply with certain of the obligations imposed on them by this Agreement and
that, in the event of any such failure, an aggrieved Person will be irreparably
damaged and will not have an adequate remedy at law. Any such Person shall,
therefore, be entitled to injunctive relief and/or specific performance to
enforce such obligations, and if any action should be brought in equity to
enforce any of such provisions of this
<PAGE>
10
Agreement, none of the parties hereto shall raise the defense that there is an
adequate remedy at law.
4.2 Further Assurances. Each party hereto shall do and perform or cause
to be done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments and documents as
any other party hereto reasonably may request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
4.3 Governing Law. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Delaware.
4.4 Entire Agreement; Amendment; Waiver. This Agreement (i) contains
the entire agreement among the parties hereto with respect to the subject matter
hereof, (ii) may not be amended or supplemented except by an instrument or
counterparts thereof in writing signed by at least 66-2/3% of the Holders or
their Agent or Proxy and, if such amendment or supplement adversely affects (x)
any holder of Series A Preferred Stock or Series A Share Equivalents, 100% of
the Series A Preferred Holders or (y) any holder of Series B Preferred Stock or
Series B Shares Equivalents, 100% of the Series B Preferred Holders and (iii)
may not be discharged except by such written instrument or by performance. Any
such amendment so approved shall be binding on all Holders. No waiver of any
term or provision shall be effective unless in writing signed by the party to be
charged. The Second Stockholders Agreement, as in existence prior to the
execution hereof, among the Initial Holders and the parties listed on Schedule A
thereto, is hereby terminated and shall be after the date hereof null and void
and of no further force and effect.
4.5 Binding Effect. This Agreement shall be binding on and inure to the
benefit of the parties hereto and, subject to the terms and provisions hereof,
their respective legal representatives, successors and assigns.
4.6 Invalidity of Provision. The invalidity or unenforceability of any
provision of this Agreement in any jurisdiction shall not affect the validity or
enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of this Agreement, including that provision, in any
other jurisdiction.
4.7 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, all of which shall be deemed but one and the same
instrument and each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
<PAGE>
11
4.8 Notices. All notices and other communications provided for or given
or made hereunder shall be in writing (including delivery by facsimile
transmission) and, unless otherwise provided herein, shall be deemed to have
been given when received by the party to whom such notice is to be given at its
address set forth in the Stock Purchase Agreement with respect to the Series A
Preferred Holders and in the Securities Purchase Agreement with respect to the
Series B Preferred Holders, or such other address for the party as shall be
specified by notice given pursuant hereto.
4.9 Headings. The descriptive headings of the several paragraphs of
this Agreement are inserted for convenience only and do not constitute part of
this Agreement.
<PAGE>
12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
CANDLEWOOD HOTEL COMPANY, INC.
By: /s/ Jack DeBoer
-------------------
Name: Jack P. DeBoer
Title: Chief Executive Officer
DOUBLETREE CORPORATION
By: /s/ Peter H. Kesser
-----------------------
Name: Peter H. Kesser
Title: Vice President
<PAGE>
13
WARREN D. FIX FAMILY
PARTNERSHIP, L.P.
By: /s/ Warren D. Fix
---------------------
Name: Warren D. Fix
Title: General Partner
/s/ Warren D. Fix
-----------------
Warren D. Fix
JACK P. DeBOER, for himself and on
behalf of the ALEXANDER DeBOER
TRUST DATED MARCH 14, 1995 and the
CHRISTOPHER SCOTT DeBOER TRUST
DATED MARCH 14, 1995
/s/ Jack P. DoBoer
------------------
Name: Jack P. DeBoer
OLYMPUS GROWTH FUND II, L.P.
By: OGP II, L.P., its General Partner
By: RSM, L.L.C., its General Partner
By: /s/ Robert S. Morris
------------------------
Name: Robert S. Morris
Title: Managing Member
<PAGE>
14
OLYMPUS EXECUTIVE FUND, L.P.
By: OEF, L.P., its General Partner
By: RSM, L.L.C., its General Partner
By: /s/ Robert S. Morris
------------------------
Name: Robert S. Morris
Title: Managing Member
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, AS TRUSTEE OF THE
COMMINGLED PENSION TRUST FUND
(MULTI-MARKET SPECIAL INVESTMENT
FUND II) OF MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By: /s/ Kathleen N. Starrs
--------------------------
Name: Kathleen N. Starrs
Title: Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, AS TRUSTEE OF THE
MULTI-MARKET SPECIAL INVESTMENT
TRUST FUND OF MORGAN GUARANTY
TRUST COMPANY OF NEW YORK
By: /s/ Kathleen N. Starrs
--------------------------
Name: Kathleen N. Starrs
Title: Vice President
<PAGE>
15
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, AS INVESTMENT
MANAGER AND AGENT FOR THE
ALFRED P. SLOAN FOUNDATION (MULTI-
MARKET ACCOUNT)
By: /s/ Kathleen N. Starrs
--------------------------
Name: Kathleen N. Starrs
Title: Vice President
CHASE VENTURE CAPITAL
ASSOCIATES, L.P.
By: Chase Capital Partners, its General
Partner
By: /s/ James D. Kallman
------------------------
Name: James D. Kallman
Title: General Partner
PRIVATE EQUITY INVESTORS III, L.P.
By: Rohit M. Desai Associates III, LLC
General Partner
By: /s/ Frank Pados
-------------------
Name: Frank Pados
Title: Attorney-In-Fact
<PAGE>
16
EQUITY-LINKED INVESTORS-II
By: Rohit Desai Associates-II
General Partner
By: /s/ Frank Pados
-------------------
Name: Frank Pados
Title: Attorney-In-Fact
LNR CANDLEWOOD HOLDINGS, INC.
By: /s/ Jeffrey A. Krascoff
---------------------------
Name: Jeffrey A. Krascoff
Title: President
DELAWARE STATE EMPLOYEES'
RETIREMENT FUNDS
By: Pecks Management Partners Ltd.,
its Investment Advisor
By: /s/ signature illegible
---------------------------
Name:
Title:
<PAGE>
17
DECLARATION OF TRUST FOR THE
DEFINED BENEFIT PLAN OF ZENECA
HOLDINGS INC.
By: Pecks Management Partners Ltd.,
its Investment Advisor
By: /s/ signature illegible
---------------------------
Name:
Title:
DECLARATION OF TRUST FOR THE
DEFINED BENEFIT PLAN OF ICI
AMERICAN HOLDINGS INC.
By: Pecks Management Partners Ltd.,
its Investment Advisor
By: /s/ signature illegible
---------------------------
Name:
Title:
J.W. McCONNELL FAMILY TRUST
By: Pecks Management Partners Ltd.,
its Investment Advisor
By: /s/ signature illegible
---------------------------
Name:
Title:
<PAGE>
18
ADVANCE CAPITAL PARTNERS, L.P.
By: Advance Capital Associates, L.P.
By: Advance Capital Management, LLC
By: /s/ Robert A. Bernstein
---------------------------
Name: Robert A. Bernstein
Title: Principal
ADVANCE CAPITAL OFFSHORE
PARTNERS, L.P.
By: Advance Capital Offshore Associates,
LDC
By: Advance Capital Associates, L.P.
By: Advance Capital Management, LLC
By: /s/ Robert A. Bernstein
---------------------------
Name: Robert A. Bernstein
Title: Principal
ALLIED CAPITAL CORPORATION
By: /s/ G. Cabell Williams, III
-------------------------------
Name: G. Cabell Williams, III
Title: Managing Director
<PAGE>
19
ALLIED CAPITAL CORPORATION II
By: /s/ G. Cabell Williams, III
-------------------------------
Name: G. Cabell Williams, III
Title: Managing Director
THE FFJ 1997 NOMINEE TRUST
By: /s/ Samuel T. Bryan
-----------------------
Name: Samuel T. Bryan
Title: Trustee
THE MUTUAL LIFE INSURANCE
COMPANY OF NEW YORK
By: /s/ Suzanne E. Walton
-------------------------
Name: Suzanne E. Walton
Title: Managing Director
J. ROMEO & CO.
By: /s/ Peter Loccia
--------------------
Name: Peter Loccia
Title: Partner
<PAGE>
20
HARBOR INVESTMENTS LTD.
By: Strong Capital Management, Inc.,
its Investment Advisor
By: /s/ Stephen J. Shenkenberg
------------------------------
Name: Stephen J. Shenkenberg
Title: Vice President & Acting
General Counsel
STRONG SPECIAL INVESTMENT LIMITED
PARTNERSHIP
By: Strong Capital Management,. Inc., its
General Partner
By: /s/ Stephen J. Shenkenberg
------------------------------
Name: Stephen J. Shenkenberg
Title: Vice President & Acting
General Counsel
STRONG QUEST LIMITED PARTNERSHIP
By: Strong Capital Management,. Inc., its
General Partner
By: /s/ Stephen J. Shenkenberg
------------------------------
Name: Stephen J. Shenkenberg
Title: Vice President & Acting
General Counsel
<PAGE>
21
Acknowledgment and Agreement:
Each of the undersigned acknowledges and agrees to the termination of the Second
Stockholders Agreement as of the date hereof.
/s/ William J. Abrams
---------------------
William J. Abrams
/s/ Joseph P. Adams, Jr.
------------------------
Joseph P. Adams, Jr.
/s/ Eric Anderson
-----------------
Eric Anderson
/s/ Robert P. Brennan, Jr.
--------------------------
Robert P. Brennan, Jr.
/s/ Robert Brody
----------------
Robert Brody
/s/ Vanessa Burgess
-------------------
Vanessa Burgess
/s/ Craig Callen
----------------
Craig Callen
/s/ Michael Dana
----------------
Michael Dana
/s/ Peter Deeks
---------------
Peter Deeks
<PAGE>
22
/s/ Robert E. Diemar, Jr.
-------------------------
Robert E. Diemar, Jr.
/s/ David Hurwitz
-----------------
David Hurwitz
/s/ Steve Kantor
----------------
Steve Kantor
/s/ Louis Klevan
----------------
Louis Klevan
/s/ Larry Lavine
----------------
Larry Lavine
/s/ Daniel J. Mackell
---------------------
Daniel J. Mackell
/s/ Patrick McMullan
--------------------
Patrick McMullan
/s/ Andrew J. McSpadden
-----------------------
Andrew J. McSpadden
/s/ David R. Smith
------------------
David R. Smith
/s/ Phil Tager
--------------
Phil Tager
/s/ Douglas M. Weill
--------------------
Douglas M. Weill
<PAGE>
SCHEDULE A-1
Olympus Growth Fund II, L.P.
Olympus Executive Fund, L.P.
Morgan Guaranty Trust Company of
New York, as Trustee of the
Commingled Pension Trust Fund (Multi-
Market Special Investment Fund II) of
Morgan Guaranty Trust Company of
New York
Morgan Guaranty Trust Company of
New York, as Trustee of the Multi-
Market Special Investment Trust Fund of
Morgan Guaranty Trust Company of
New York
Morgan Guaranty Trust Company of
New York, as Investment Manager and
Agent for the Alfred P. Sloan Foundation
(Multi-Market Account)
Chase Venture Capital Associates, L.P.
Private Equity Investors III, L.P.
Equity-Linked Investors-II
LNR Candlewood Holdings, Inc.
Delaware State Employees' Retirement Funds
Declaration of Trust for the Defined Benefit Plan of Zeneca Holdings, Inc.
Declaration of Trust for the Defined Benefit Plan of ICI American Holdings Inc.
J.W. McConnell Family Trust
Advance Capital Partners, L.P.
Advance Capital Offshore Partners, L.P.
<PAGE>
2
Allied Capital Corporation
Allied Capital Corporation II
The FFJ 1997 Nominee Trust
J. Romeo & Co.
Harbor Investments Ltd.
Strong Special Investment Limited Partnership
Strong Quest Limited Partnership
<PAGE>
SCHEDULE A-2
Private Equity Investors III, L.P.
Equity-Linked Investors-II
Olympus Growth Fund II, L.P.
Olympus Executive Fund, L.P.
Delaware State Employees' Retirement Funds
Declaration of Trust for the Defined Benefit Plan of Zeneca Holdings, Inc.
Declaration of Trust for the Defined Benefit Plan of ICI American Holdings Inc.
J.W. McConnell Family Trust
The Mutual Life Insurance Company of New York
Advance Capital Partners, L.P.
Advance Capital Offshore Partners, L.P.
<PAGE>
SCHEDULE A-3
William J. Abrams
Joseph P. Adams, Jr.
Eric Anderson
Robert P. Brennan, Jr.
Robert Brody
Vanessa Burgess
Craig Callen
Michael Dana
Peter Deeks
Robert E. Diemar, Jr.
David Hurwitz
Steve Kantor
Louis Klevan
Larry Lavine
Daniel J. Mackell
Patrick McMullan
Andrew J. McSpadden
David R. Smith
Phil Tager
Douglas M. Weill
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This Amended and Restated Registration Rights Agreement, dated as of
July 10, 1998 (this "Agreement"), is made by and among Candlewood Hotel Company,
Inc., a Delaware corporation ("Candlewood" or the "Company"), Doubletree
Corporation, a Delaware corporation ("Doubletree"), Mr. Jack P. DeBoer
("DeBoer"), on behalf of himself and as representative of the Alexander John
DeBoer Trust dated March 14, 1995 and the Christopher Scott DeBoer Trust dated
March 14, 1995 (collectively, the "Trusts"), the Warren D. Fix Family
Partnership, L.P. (the "Fix Partnership") and each of the parties set forth on
Schedule A attached hereto (collectively, the "Investors" and, together with
Candlewood, Doubletree, DeBoer, the Trusts and the Fix Partnership, the
"Parties").
BACKGROUND
A. DeBoer, Doubletree and the Fix Partnership had previously entered
into that certain Incorporation and Registration Rights Agreement dated
September 1, 1996 (the "Original Agreement").
B. The Company completed an initial public offering of Common Stock,
par value $0.01 per share (the "Common Stock"), of the Company on November 5,
1996 (the "Initial Public Offering").
C. In connection with the issuance and sale of shares of Series A
Cumulative Convertible Preferred Stock, par value $.01 per share (the "Series A
Preferred Stock"), of the Company pursuant to the Stock Purchase Agreement,
dated as of August 27, 1997, among the Company and the other parties signatory
thereto, the Original Agreement was terminated and the Company entered into the
Registration Rights Agreement, dated as of September 22, 1997 (the "Second
Registration Rights Agreement"), among the Company, DeBoer, the Trusts, the Fix
Partnership and the other parties signatory thereto.
D. In connection with the issuance and sale of (i) shares of Series B
Cumulative Convertible Preferred Stock, par value $.01 per share (the "Series B
Preferred Stock"), of the Company and (ii) warrants (the "Warrants") exercisable
to purchase initially 336,000 shares of Common Stock at an initial exercise
price of $12.00 per share pursuant to the Securities Purchase Agreement, dated
as of June 30, 1998 (the "Securities Purchase Agreement"), among the Company and
the other parties signatory thereto, the Company has agreed to grant certain
registration rights with respect to the shares of Common Stock issuable upon the
conversion of the Series B Preferred Stock and the exercise of the Warrants.
E. The parties to the Second Registration Rights Agreement hereby
terminate the Second Registration Rights Agreement and enter into this Agreement
on the terms and subject to the conditions set forth below.
<PAGE>
2
NOW, THEREFORE, in consideration of the foregoing and intending to be
legally bound, the Parties agree as follows:
1. Certain Definitions. As used in this Agreement the following terms
shall have the following respective meanings:
"Commission" means the United States Securities and Exchange
Commission.
"Eligible Securities" means the shares of Common Stock (i) issued to
Doubletree, DeBoer, the Trusts and the Fix Partnership upon the reorganization
of the Company from Candlewood Hotel Company, LLC to a Delaware corporation,
(ii) to be issued upon the conversion of the Series A Preferred Stock into
Common Stock, stock dividends paid with respect to such shares or issued in
exchange for or in lieu of such shares, (iii) issued or issuable upon exercise
of any Series A Purchase Warrants, (iv) to be issued upon (x) the conversion of
the Series B Preferred Stock into Common Stock and (y) the exercise of the
Warrants into Common Stock, and stock dividends paid with respect to such shares
or issued in exchange for or in lieu of such shares and (v) issued or issuable
upon exercise of any Series B Purchase Warrants ("Eligible Securities" described
in clause (ii) or (iii) being referred to collectively as "Series A Preferred
Eligible Securities" and "Eligible Securities" described in clause (iv) or (v)
being referred to collectively as "Series B Preferred Eligible Securities").
"Holder" means a registered holder of outstanding Eligible Securities
or securities convertible into or exercisable for Eligible Securities.
"Preferred Stock" means, collectively, the Series A Preferred Stock and
the Series B Preferred Stock.
"Purchase Warrants" means, collectively, the Series A Purchase Warrants
and the Series B Purchase Warrants.
"Securities Act" means the Securities Act of 1933 or any similar
Federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
"Series A Certificate of Designation" means the Certificate of
Designations, Preferences and Relative, Participating, Optional and Other
Special Rights of Preferred Stock and Qualifications, Limitations and
Restrictions Thereof, dated September 22, 1997, relating to the Series A
Preferred Stock.
"Series A Preferred Stock" has the meaning set forth in the recitals to
this Agreement.
"Series A Purchase Warrant" means any warrant for the purchase of
Common Stock issued to any holder of Series A Preferred Stock in accordance with
<PAGE>
3
the terms of the Series A Certificate of Designation establishing the
preferences and rights of and the qualifications, limitations and restrictions
with respect to the Series A Preferred Stock.
"Series B Certificate of Designation" means the Certificate of
Designations, Preferences and Relative, Participating, Optional and Other
Special Rights of Preferred Stock and Qualifications, Limitations and
Restrictions Thereof, dated July 9, 1998, relating to the Series B Preferred
Stock.
"Series B Preferred Stock" has the meaning set forth in the recitals to
this Agreement.
"Series B Purchase Warrant" means any warrant for the purchase of
Common Stock issued to any holder of Series B Preferred Stock in accordance with
the terms of the Series B Certificate of Designation establishing the
preferences and rights of and the qualifications, limitations and restrictions
with respect to the Series B Preferred Stock.
"Warrants" has the meaning set forth in the recitals to this Agreement.
2. Required Registration.
(a) At any time after 90 days from the date of the issuance
and sale of the Series B Preferred Stock (i) Doubletree, (ii) Investors holding
at least 50% of the shares of the Series A Preferred Eligible Securities or
(iii) Investors holding at least 50% of the shares of Series B Preferred
Eligible Securities may deliver to the Company a written request that the
Company file and use its best efforts to cause to become effective a
registration statement under the Securities Act with respect to such number of
the Eligible Securities owned by Doubletree or the Investors as shall be
specified in such request (a "Registration Request"); provided, however, that
the Company shall not be obligated to effect any such registration pursuant to
subsections (ii) or (iii) on behalf of the Investors unless the anticipated
aggregate offering price, net of underwriting discounts and commissions, would
exceed $20,000,000. Except as otherwise provided in Section 2(b)(iv), 2(b)(v)
and 2(b)(vi) hereof, the Company shall not be required to file and use its best
efforts to cause to become effective, pursuant to a Registration Request under
this Section 2, (a) more than two registration statements at the demand of
Doubletree, (b) more than two registration statements at the demand of the
Investors holding shares of Series A Preferred Eligible Securities or (c) more
than two registration statements at the demand of Investors holding shares of
Series B Preferred Eligible Securities. The party or parties delivering a
Registration Request is hereinafter referred to as the "Requesting Holder." The
second Registration Request made by the Investors holding shares of Series A
Preferred Eligible Securities may be identified by such Requesting Holders as a
"Series A Priority Demand." The second Registration Request made by Investors
holding shares of Series B Preferred Eligible Securities may be identified by
such Requesting Holders as a "Series B Priority Demand".
<PAGE>
4
(b) As soon as practicable following the receipt of a
Registration Request, the Company will use its best efforts to register under
the Securities Act, for public sale in accordance with the method of disposition
specified in such Registration Request, the number of shares of Eligible
Securities specified in such Registration Request (and the number of Eligible
Securities specified in all notices received from Holders within 20 days after
their receipt of notice delivered pursuant to Section 4 hereof). The Company
will also be entitled to include in any registration statement filed pursuant to
a Registration Request, for sale in accordance with the method of disposition
specified in such Registration Request, such number of shares of Common Stock as
the Company shall desire to sell for its own account. If the method of sale
designated is an underwritten public offering, the managing underwriter or
underwriters must be reasonably acceptable to both the Requesting Holder, or the
holders of a majority of the Eligible Securities held by all parties comprising
the Requesting Holder if more than one party is the Requesting Holder, and the
Company, which acceptance shall not be unreasonably withheld. Notwithstanding
the foregoing provisions of this paragraph (b), to the extent that, in the
opinion of the underwriter or underwriters (if the method of disposition shall
be an underwritten public offering), marketing considerations require the
reduction of the number of shares of Common Stock covered by any such
registration, the number of shares of Common Stock to be registered and sold
pursuant to such registration shall be reduced as follows:
(i) The number of shares of Eligible Securities to be
registered on behalf of the Company shall be reduced (to zero, if
necessary);
(ii) The number of shares of Eligible Securities to
be registered on behalf of DeBoer, the Trusts and the Fix Partnership
shall be reduced (to zero, if necessary) pro rata according to the
number of shares of Eligible Securities held by each;
(iii) The number of shares of Eligible Securities to
be registered on behalf of Doubletree and the Investors shall be
reduced pro rata according to the number of shares of Eligible
Securities held by each; provided, however, that in connection with a
Series A Priority Demand the number of shares of Eligible Securities
requested to be registered on behalf of the Investors shall only be
reduced after the number of shares requested to be registered by
Doubletree has been reduced to zero; and provided, further, that in
connection with a Series B Priority Demand the number of shares of
Eligible Securities requested to be registered on behalf of the
Investors shall only be reduced after the number of shares requested to
be registered by Doubletree has been reduced to zero;
(iv) Notwithstanding the foregoing, if in connection
with any Registration Request made by Doubletree, the number of
Eligible Securities requested to be registered by Doubletree shall have
been reduced, the number of Registration Requests granted to Doubletree
pursuant to clause 2(a) above shall be increased by one;
<PAGE>
5
(v) Notwithstanding the foregoing, if in connection
with any Registration Request made by the Investors holding shares of
Series A Preferred Eligible Securities, such Investors requesting
inclusion of Eligible Securities in such registration shall experience
a reduction in the number of such Eligible Securities by 10% or more,
the number of Registration Requests granted to the Investors holding
shares of Series A Preferred Eligible Securities pursuant to clause
2(a) above shall be increased by one;
(vi) Notwithstanding the foregoing, if in connection
with any Registration Request made by the Investors holding shares of
Series B Preferred Eligible Securities, such Investors requesting
inclusion of Eligible Securities in such registration shall experience
a reduction in the number of such Eligible Securities by 10% or more,
the number of Registration Requests granted to the Investors holding
shares of Series B Preferred Eligible Securities pursuant to clause
2(a) above shall be increased by one; and
(vii) In no event shall any registration of Common
Stock by the Company pursuant to Section (vi)(b) of the Series A
Certificate of Designation or Section (vi)(b) of the Series B
Certificate of Designation constitute a Registration Request allowable
to any Holder pursuant to clause 2(a) above.
(c) Notwithstanding the foregoing provisions of this Section
2, the Company shall not be obligated to file a registration statement at the
demand of any Holder pursuant to this Section 2 within 180 days following any
underwritten public offering of Common Stock or of securities of the Company
convertible into or exercisable or exchangeable for Common Stock.
(d) Notwithstanding anything to the contrary contained herein,
the exercise by any Holder of any right hereunder with respect to shares of
Series A Preferred Eligible Securities or shares of Series B Preferred Eligible
Securities, as the case may be, shall not effect or diminish any other rights of
such Holder hereunder with respect to any other securities of the Company held
by such Holder.
3. Shelf Registration on Form S-3.
(a) At any time after 90 days from the date of the issuance
and sale of the Series B Preferred Stock any Holder or Holders may deliver to
the Company a written request (a "Form S-3 Request") that the Company file and
use its best efforts to cause to become effective a "shelf" registration
statement on Form S-3 (or such equivalent successor form) under the Securities
Act for an offering to be made on a delayed or continuous basis pursuant to Rule
415 under the Securities Act (a "Shelf Registration Statement") with respect to
such number of Eligible Securities
<PAGE>
6
owned by the Holder or Holders as shall be specified in such request; (and the
number of Eligible Securities specified in all notices received from Holders
within 20 days after their receipt of notice delivered pursuant to Section 4
hereof); provided, however, that the Company shall not be obligated to effect
any such registration pursuant to this Section 3 unless the aggregate value of
the securities to be registered thereon would exceed $2,500,000. The Company
shall not be required to file and use its best efforts to cause to become
effective, pursuant to a Form S-3 Request under this Section 3, (a) more than
two Shelf Registration Statements at the request of Doubletree, (b) more than
two Shelf Registrations at the request of the Investors holding shares of Series
A Preferred Eligible Securities or (c) more than two Shelf Registrations at the
request of Investors holding shares of Series B Preferred Eligible Securities.
(b) As soon as practicable following the receipt of a Form S-3
Request, the Company will use its best efforts to register under the Securities
Act, for an offering to be made on a delayed or continuous basis pursuant to
Rule 415 of the Securities Act, the number of shares of Eligible Securities
specified in such Form S-3 Request (and the number of Eligible Securities
specified in all notices received from Holders within 20 days after their
receipt of notice delivered pursuant to Section 4 hereof). The Company will also
be entitled to include in any Shelf Registration Statement filed pursuant to
this Section 3 such number of shares of Common Stock as the Company shall desire
to sell for its own account.
4. Piggyback Registration.
(a) If the Company at any time proposes to register Common
Stock under the Securities Act for sale to the public (including registrations
pursuant to Section 2 or 3 hereof), whether for its own account or for the
account of other security holders or both (except registration statements on
Form S-8, S-4 or another form not available for registering the Eligible
Securities for sale to the public), each such time it will give written notice
to all Holders of its intention to do so. Upon the written request of any Holder
(a "Piggyback Request"), given within 20 days after receipt of any such notice,
to register any of its Eligible Securities, the Company will use its best
efforts to cause the Eligible Securities as to which registration shall have
been so requested to be covered by the registration statement proposed to be
filed by the Company.
(b) In the event that any registration statement described in
this Section 4 shall relate, in whole or in part, to an underwritten public
offering of shares of Common Stock, the Eligible Securities to be registered
must be sold through the same underwriters as have been selected by the Company
or agreed to pursuant to Section 2(b) hereof. Otherwise, the method of
distribution of the Eligible Securities to be sold by any Holder making a
Piggyback Request shall be as specified therein. Except in the case of a
registration statement filed pursuant to a Registration Request under Section 2
hereof or a Form S-3 Request made under Section 3 hereof, the number of shares
of Common Stock to be included in such registration statement on account of any
person (other than the Company) may be reduced if and to the extent
<PAGE>
7
that the underwriter or underwriters shall be of the opinion that such inclusion
would materially adversely affect the marketing of the total number of shares of
Common Stock proposed to be sold, and the number of shares to be registered and
sold by each person (other than the Company) shall be reduced pro rata according
to the relative number of fully diluted shares owned by such person.
Notwithstanding the foregoing provisions of this Section 4, the Company may
withdraw any registration statement referred to in this Section 4 without
thereby incurring any liability to any requesting Holder.
5. Registration Procedures. If and whenever the Company is required by
the provisions of Section 2, 3 or 4 to effect the registration of any Eligible
Securities under the Securities Act, the Company shall:
(a) prepare and file with the Commission a registration
statement with respect to such securities which will permit the public sale
thereof in accordance with the method of distribution specified in the
applicable Registration Request, and the Company shall use its best efforts (i)
to cause such registration statement to be filed within 60 days of receipt of
the Registration Request (ii) to cause such registration statement to be
declared effective as promptly as practicable and (iii) to maintain the
effectiveness of such registration statement for a period of not less than 90
days (or until such time as all securities sold thereunder shall have been sold,
in the case of a registration on Form S-3);
(b) promptly prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to effect and maintain the
effectiveness of such registration statement for the period specified in Section
5(a) and as to comply with the provisions of the Securities Act with respect to
the disposition of all Eligible Securities covered by such registration
statement in accordance with the intended method of disposition set forth in
such registration statement for such period, including such amendments or
supplements as are necessary to cure any untrue statement or omission referred
to in Section 5(e)(vi);
(c) provide to the managing underwriter or underwriters and
not more than one counsel for all underwriters and to the Holders of Eligible
Securities to be included in such registration statement and not more than one
counsel for all such Holders (such counsel to be reasonably acceptable to the
Company) the opportunity to participate in the preparation of (i) such
registration statement, (ii) each prospectus relating thereto and included
therein or filed with the Commission and (iii) each amendment or supplement
thereto;
(d) make available for inspection by the parties referred to
in Section 5(c) such financial and other information and books and records of
the Company, and cause the officers, directors and employees of the Company, and
counsel and independent certified public accountants of the Company, to respond
to such inquiries, as shall be reasonably necessary, in the judgment of
respective counsel to such Holders and such underwriter or underwriters, to
conduct a reasonable
<PAGE>
8
investigation within the meaning of the Securities Act; provided, however, that
each such person shall be required to retain in confidence and not to disclose
to any other person any information or records reasonably designated by the
Company in writing as being confidential until such time as such information
becomes a matter of public record (whether by virtue of its inclusion in such
registration statement or otherwise), unless (i) such person shall be required
to disclose such information pursuant to the subpoena or order of any court or
other governmental agency or body having jurisdiction over the matter or to the
National Association of Insurance Commissioners or (ii) such information is
required to be set forth in such registration statement or the prospectus
included therein or in an amendment to such registration statement or an
amendment or supplement to such prospectus in order that such registration
statement, prospectus, amendment or supplement, as the case may be, shall not
contain an untrue statement of a material fact or omit to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and such information has not been so set forth after the
request by a Holder to such effect; and provided, further, that the Company need
not make such information available, nor need it cause any officer, director or
employee to respond to such inquiry, unless each such Holder and such counsel,
upon the Company's request, execute and deliver to the Company an undertaking to
substantially the same effect contained in the immediately preceding proviso;
(e) immediately notify the persons referred to in Section 5(c)
and (if requested by any such person) confirm such advice in writing, (i) when
such registration statement or any prospectus included therein or any amendment
or supplement thereto has been filed and, with respect to such registration
statement or any such amendment, when the same has become effective, (ii) of any
material comments by the Commission with respect thereto or any request by the
Commission for amendments or supplements to such registration statement or
prospectus or for additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of such registration
statement or the initiation of any proceedings for that purpose, (iv) if at any
time the representations and warranties of the Company contemplated by Section
5(l)(i) cease to be true and correct in all material respects, (v) of the
receipt by the Company of any notification with respect to the suspension of the
qualification of any Eligible Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose or (vi) at any time
when a prospectus is required to be delivered under the Securities Act, of the
occurrence or failure to occur of any event, or any other change in law, fact or
circumstance, as a result of which such registration statement, prospectus or
any amendment or supplement thereto, or any document incorporated by reference
in any of the foregoing, contains an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing;
(f) take reasonable efforts to obtain the withdrawal at the
earliest practicable date of any order suspending the effectiveness of such
registration statement or any post-effective amendment thereto;
<PAGE>
9
(g) if requested by the managing underwriter or underwriters
or the Holders of at least a majority of the Eligible Securities being sold in
connection with an underwritten public offering, promptly incorporate in a
prospectus supplement or post-effective amendment such information as such
managing underwriter or underwriters or such Holders reasonably specify should
be included therein relating to the terms of the sale of such Eligible
Securities, including, without limitation, information with respect to the
number of Eligible Securities being sold to such underwriters, the names and
descriptions of such Holders, the purchase price being paid therefor by such
underwriters and any other terms of the underwritten (or best efforts
underwritten) offering of the Eligible Securities to be sold in such offering,
and make all required filings of such prospectus supplement or post-effective
amendment promptly after notification of the matters to be incorporated in such
prospectus supplement or post-effective amendment;
(h) furnish to each Holder of Eligible Securities included in
such registration and each underwriter and counsel for Holder, if any, thereof
an executed copy of such registration statement, each such amendment and
supplement thereto (in each case including all exhibits thereto, whether or not
such exhibits are incorporated by reference therein) and such number of copies
of the prospectus included in such registration statement (including each
preliminary prospectus and any summary prospectus) and each amendment or
supplement thereto, in conformity with the requirements of the Securities Act,
as such Holder and managing underwriter, if any, may reasonably request in order
to facilitate the disposition of such Eligible Securities by such Holder or by
the participating underwriters;
(i) use its best efforts to (i) register or qualify the
Eligible Securities to be included in such registration statement under such
other securities laws or blue sky laws of such jurisdictions as any Holder of
such Eligible Securities and each managing underwriter, if any, thereof shall
reasonably request, (ii) keep such registrations or qualifications in effect for
so long as is necessary to effect the disposition of such Eligible Securities in
the manner contemplated by the registration statement, the prospectus included
therein and any amendment or supplement thereto and (iii) take any and all such
actions as may be reasonably necessary or advisable to enable such Holder and
any participating underwriter or underwriters to consummate the disposition in
such jurisdictions of such Eligible Securities; provided, however, that the
Company shall not be required for any such purpose to (A) qualify generally to
do business as a foreign corporation or a broker-dealer in any jurisdiction
wherein it would not otherwise be required to qualify but for the requirements
of this Section 5(i), (B) subject itself to taxation in any such jurisdiction or
(C) consent to general service of process in any such jurisdiction;
(j) cooperate with the Holders of the Eligible Securities
included in such registration and the managing underwriters, if any, to
facilitate the timely preparation and delivery of certificates representing
Eligible Securities to be sold, which certificates shall be printed,
lithographed or engraved, or produced by any combination of such methods, on
steel engraved borders and which shall not bear any restrictive legends; and, in
the case of an underwritten public offering, enable
<PAGE>
10
such Eligible Securities to be registered in such names as the underwriter or
underwriters may request at least two business days prior to any sale of such
Eligible Securities;
(k) provide not later than the effective date of the
registration statement a CUSIP number for all Eligible Securities;
(l) enter into an underwriting agreement, engagement letter,
agency agreement, "best efforts" underwriting agreement or similar agreement, as
appropriate, and take such other actions in connection therewith as the Holders
of at least a majority of the Eligible Securities to be included in such
registration shall reasonably request in order to expedite or facilitate the
disposition of such Eligible Securities, and in connection therewith, whether or
not an underwriting agreement is entered into and whether or not the
registration is an underwritten public offering, (i) make such representations
and warranties to the Holders of such Eligible Securities included in such
registration and the underwriters, if any, in form, substance and scope as are
customarily made in an underwritten public offering, (ii) obtain an opinion of
counsel to the Company in customary form and covering such matters as are
customarily covered by such an opinion as the Holder of at least a majority of
such Eligible Securities and the underwriters, if any, may reasonably request,
addressed to each participating Holder and the underwriters, if any, and dated
the effective date of such registration statement (or, if such registration
includes an underwritten public offering, dated the date of the closing under
the underwriting agreement); (iii) obtain a "cold comfort" letter from the
independent certified public accountants of the Company addressed to the Holders
of the Eligible Securities included in such registration and the underwriters,
if any, dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, also dated the date of
the closing under the underwriting agreement), such letter to be in customary
form and covering such matters as are customarily covered by such letters; (iv)
deliver such documents and certificates as may be reasonably requested by the
Holders of at least a majority of the Eligible Securities included in such
registration and the managing underwriter or underwriters, if any, to evidence
compliance with clause (i) above and with any customary conditions contained in
the underwriting agreement or other agreement entered into by the Company, and
(v) undertake such obligations relating to expense reimbursement,
indemnification and contribution as are provided in Sections 6, 7 and 8 hereof;
and
(m) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission.
Notwithstanding the provisions of Section 5(a), the Company's
obligation to file a registration statement, or cause such registration
statement to become effective, shall be suspended, without incurring any
liability to any Holder, for a period not to exceed 90 days if there exists at
the time material non-public information relating to the Company that, in the
reasonable opinion of the Company, should not be disclosed, provided that any
such suspension shall occur no more than once in any twelve (12)-month period.
In such an event, the Company shall promptly
<PAGE>
11
inform all Holders of the Company's decision to defer filing of a registration
statement and shall notify all Holders promptly (but in any event not later than
upon the expiration of the 90-day period specified in the immediately preceding
sentence) of the recommencement of the Company's efforts to file the
registration statement and to cause the registration statement to become
effective.
In connection with each registration of Eligible Securities hereunder,
the Holders thereof will furnish to the Company in writing such information with
respect to themselves and the proposed distribution by them as shall be
reasonably necessary in order to assure compliance with applicable federal and
state securities laws. Each such Holder also agrees to notify the Company as
promptly as practicable of any inaccuracy or change in information previously
furnished by such Holder to the Company or of the occurrence of any other event,
in either case as a result of which any prospectus relating to such registration
contains an untrue statement of a material fact regarding such Holder or the
distribution of such Eligible Securities or omits to state any material fact
regarding such Holder or the distribution of such Eligible Securities required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances then existing, and promptly to furnish to the
Company any additional information required to correct and update such
previously furnished information or required so that such prospectus shall not
contain, with respect to such Holder or the distribution of such Eligible
Securities, an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in light of the circumstances then existing. Each such Holder
further agrees that upon giving any notice referred to in the immediately
preceding sentence, or upon receipt of any notice from the Company pursuant to
Section 5(e)(vi) hereof, such Holder shall forthwith discontinue the disposition
of Eligible Securities pursuant to the registration statement applicable to such
Eligible Securities until such Holder shall have received copies of an amended
or supplemented registration statement or prospectus, and if so directed by the
Company, such Holder shall deliver to the Company (at the Company's expense) all
copies, other than permanent file copies, then in such Holder's possession of
the prospectus covering such Eligible Securities at the time of receipt of such
notice.
6. Expenses. The Company shall pay all expenses incurred in complying
with Sections 2, 3 and 4, including without limitation all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses of one counsel
for the selling Holders, fees and expenses (including counsel fees) incurred in
connection with complying with state securities or "blue sky" laws (other than
those which by law must be paid by the selling security holders), fees of the
National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars and stock exchange listing fees, but excluding
all underwriting discounts and selling commis sions applicable to the sale of
Eligible Securities. All expenses of participating sellers other than those
assumed by the Company in this Agreement shall be borne by such sellers in
proportion to the number of shares sold by each seller or as they may otherwise
agree.
<PAGE>
12
7. Indemnification.
(a) In the event of a registration of Eligible Securities
under the Securities Act pursuant to Section 2, 3 or 4, the Company shall
indemnify and hold harmless each selling Holder, each underwriter of such
Eligible Securities thereunder and each other person, if any, who controls such
selling Holder or underwriter within the meaning of the Securities Act, against
any losses, claims, damages or liabilities, joint or several, to which such
selling Holder, underwriter or controlling person may become subject under the
Securities Act or otherwise or in any action in respect thereof, and will
reimburse each such selling Holder, underwriter and controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action, as
such expenses are incurred, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such Eligible Securities were registered
under the Securities Act pursuant to Section 2, 3 or 4, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the Company shall
not be liable to any such selling Holder, underwriter or controlling person in
any such case if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in conformity with information
furnished by such selling Holder, underwriter or controlling person in writing
specifically for use in such registration statement or prospectus.
(b) In the event of a registration of any of the Eligible
Securities under the Securities Act pursuant to Section 2, 3 or 4, each selling
Holder of such Eligible Securities, severally and not jointly, will indemnify
and hold harmless the Company, each underwriter and each person, if any, who
controls the Company or any underwriter within the meaning of the Securities
Act, each officer of the Company who signs the registration statement, each
director of the Company, each other seller of securities registered by the
registration statement covering such Eligible Securities and each person, if
any, who controls such seller, against all losses, claims, damages or
liabilities, joint or several, to which the Company or any such officer,
director, underwriter, other seller or controlling person may become subject
under the Securities Act or otherwise, and shall reimburse the Company and each
such officer, director, underwriter, other seller and controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
but only to the extent that any such loss, claim, damage or liability (or action
in respect thereof) arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such Holder furnished in
writing to the Company by such Holder specifically for
<PAGE>
13
use in the registration statement or prospectus relating to such Eligible
Securities. Notwithstanding the immediately preceding sentence, the liability of
each such Holder hereunder shall not in any event exceed the net proceeds
received by such Holder from the sale of Eligible Securities covered by such
registration statement.
(c) Promptly after receipt by an indemnified party hereunder
of notice of the commencement of any action, such indemnified party, if a claim
in respect thereof is to be made against an indemnifying party hereunder, shall
notify such indemnifying party in writing thereof, but the omission so to notify
such indemnifying party shall not relieve such indemnifying party from any
liability that it may have to any indemnified party other than under this
Section 7 and, unless the failure to so provide notice materially adversely
affects or prejudices such indemnifying party's defense against any action,
shall not relieve such indemnifying party from any liability that it may have to
any indemnified party under this Section 7. In case any such action shall be
brought against any indemnified party and it shall notify an indemnifying party
of the commencement thereof, such indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel reasonably satisfactory to such indemnified party,
and, after notice from such indemnifying party to such indemnified party of its
election so to assume and undertake the defense thereof, such indemnifying party
shall not be liable to such indemnified party under this Section 7 for any legal
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison with
counsel so selected; provided, however, that, if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it that are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified party shall have the right to select a separate counsel
and to assume and undertake the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such defense to be
reimbursed by the indemnifying party as incurred.
(d) No indemnifying party shall be liable for any amounts paid
in a settlement effected without the consent of such indemnifying party, which
consent shall not be unreasonably withheld. No indemnifying party shall consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the plaintiff to the indemnified
party of a release from all liability in respect of such claim or litigation.
(e) The reimbursements required by this Section 7 shall be
made by periodic payment during the course of the investigation or defense, as
and when bills are received and expenses incurred.
8. Contribution. If for any reason the indemnity set forth in Section 7
is unavailable or is insufficient to hold harmless an indemnified party, then
the indemnifying party shall contribute to the amount paid or payable by such
<PAGE>
14
indemnified party as a result of the aggregate losses, claims, damages,
liabilities and expenses of the nature contemplated by said indemnity (i) in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and such indemnified party on the other
(determined by reference to, among other things, whether the untrue statement of
a material fact or omission to state a material fact relates to information
supplied by the indemnifying party or such indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission), or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law or provides a lesser sum
to such indemnified party than the amount hereinafter calculated, in such
proportion as is appropriate to reflect not only the relative fault of the
indemnifying party and such indemnified party but also the relative benefits
received by the indemnifying party on the one hand and such indemnified party on
the other, as well as any other relevant equitable considerations.
The Company and the Parties agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable consideration referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or expenses referred to in such paragraph shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section, a Holder shall not be required to contribute any
amount in excess of the amount by which the net proceeds of the sale of Eligible
Securities sold by such Holder and distributed to the public exceeds the amount
of any damages which such Holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
which is not guilty of such fraudulent misrepresentation.
9. Underwriting Agreement. If Eligible Securities are to be sold
pursuant to a registration statement in an underwritten offering pursuant to
Section 2, 3 or 4, the Company and each selling Holder of Eligible Securities
agrees to enter into a written agreement with the managing underwriter or
underwriters selected in the manner herein provided in such form and containing
such provisions as are reasonably satisfactory to the Company and each such
selling Holder and as are customary in the securities business for such an
arrangement among such underwriter or underwriters, each such selling Holder and
companies of the Company's size and investment stature. No Holder of Eligible
Securities may participate in any underwritten sale of Eligible Securities
pursuant to Section 2, 3 or 4 hereof unless such Holder agrees to sell such
Holder's securities in accordance with any underwriting arrangements approved by
the persons entitled hereunder to specify the method of distribution of the
securities being registered and completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements.
<PAGE>
15
Notwithstanding anything to the contrary contained herein, no Holder of Eligible
Securities shall be required to make any representations and warranties to the
Company or the underwriters other than representations or warranties regarding
the identity of such Holder, such Holder's Eligible Securities, such Holder's
ability to transfer title to such Holder's Eligible Securities and such Holder's
intended method of distribution or any other representations required by
applicable law.
10. Limitations on Subsequent Registration Rights. If, subsequent to
the date hereof, the Company grants to any holders or prospective holders of the
Company's securities the right to require that the Company register any
securities of the Company under the Securities Act, such registration rights
shall be granted subject to the rights of the Holders to include all or part of
their Eligible Securities in any such registration on the terms and conditions
set forth in Section 4.
11. Rule 144. The Company covenants with the Holders of Eligible
Securities that, if and to the extent the Company shall be required to do so
under the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder, as the same may be amended and in effect at the time
(the "Exchange
<PAGE>
16
Act"), the Company shall timely file the reports required to be filed by it
under the Exchange Act or the Securities Act (including, but not limited to, the
reports under Sections 13 and 15(d) of the Exchange Act referred to in
subparagraph (c)(1) of Rule 144 adopted by the Commission under the Securities
Act), all to the extent required from time to time to enable such Holder to sell
Eligible Securities without registration under the Securities Act within the
limitations of the exemption provided by Rule 144 under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission. Upon the request of any Holder of Eligible
Securities, the Company shall deliver to such Holder a written statement as to
whether it has complied with such requirements.
12. Miscellaneous.
(a) All covenants and agreements contained in this Agreement
by or on behalf of any of the signatories shall bind and inure to the benefit of
the respective successors and permitted assigns of the signatories, whether so
expressed or not. If any permitted transferee of any Holder of Eligible
Securities shall acquire Eligible Securities in any manner (other than by way of
a registered public offering), whether by operation of law of otherwise, such
Eligible Securities shall be held subject to all of the terms of this Agreement,
and by taking and holding such Eligible Securities such transferee shall be
entitled to receive the benefits of and be conclusively deemed to have agreed to
be bound by and to perform all of the terms and provisions of this Agreement.
The benefits to which any such permitted transferee shall be entitled shall
include, without limitation, the rights to register Eligible Securities under
Sections 2, 3 and 4 hereof; provided, however, that any such permitted
transferee shall not be entitled to deliver to the Company a Registration
Request or a Form S-3 Request pursuant to Section 2 or 3 hereof unless such
permitted transferee acquired from its transferor (i) with respect to Eligible
Securities issued upon the conversion of Preferred Stock, at least 100,000
Eligible Securities; provided, however, that the transfer of registration rights
held pursuant to this Agreement to a partner, shareholder, equity holder or
officer of any Investor shall be without restriction as to minimum shareholding;
or (ii) with respect to all other Eligible Securities, at least a majority of
the Eligible Securities owned by such transferor at the time of transfer. If the
Company shall so request, any such successor or permitted assign shall agree in
writing to acquire and hold the Eligible Securities subject to all of the terms
hereof. This Section 12(a) shall not be deemed to create any right on the part
of any Holder to transfer Eligible Securities in contravention of any
restriction thereon contained in any other agreement to which such Holder is a
party.
(b) All notices, consents and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given when
(a) delivered by hand, (b) sent by telecopier (with receipt confirmed), provided
that a copy is mailed by registered mail, return receipt requested, or (c) when
received by the addressee, if sent by Express Mail, Federal Express or other
express delivery service (receipt requested), in each case to the appropriate
addresses and telecopier
<PAGE>
17
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate as to itself by notice to the other parties):
(i) If to Doubletree: 755 Crossover Lane, Memphis,
TN, telecopier number (901) 374-5050, Attention: General Counsel.
(ii) If to the Company: Lakepoint Office Park, 9342
East Central, Wichita, Kansas 67206, telecopier number (316) 631-1333,
Attention: President.
(iii) If to DeBoer or the Trusts: Lakepoint Office
Park, 9342 East Central, Wichita, Kansas 67206, telecopier number (316)
631-1333, Attention: Jack DeBoer.
(iv) If to the Fix Partnership: Lakepoint Office
Park, 9342 East Central, Wichita, Kansas 67206, telecopier number (316)
631-1333, Attention: Warren Fix.
(v) If to an Investor: at the address set forth on
Schedule A attached hereto.
(c) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
(d) This Agreement may not be amended or modified, and no
provision hereof may be waived, except in writing, and any such writing shall
only be effective with respect to a Party who has executed such writing. The
failure of any of the Parties to insist upon strict adherence to any term of
this Agreement on any occasion shall not be considered a waiver of that term or
deprive such Party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
(e) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(f) The Parties acknowledge that there may be no adequate
remedy at law if any Party fails to perform any of its obligations hereunder and
that each Party may be irreparably harmed by any such failure, and accordingly
agree that each Party, in addition to any other remedy to which it may be
entitled in law or in equity, shall be entitled to compel specific performance
of the obligations of any other Party under this Agreement in accordance with
the terms and conditions of this Agreement in any court of the United States or
any state thereof having jurisdiction.
(g) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
<PAGE>
18
(h) In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be in any way impaired thereby,
it being intended that all of the rights and privileges of the Holders shall be
enforceable to the fullest extent permitted by law.
(i) This Agreement is intended by the Parties as a final
expression of their agreement and a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties or
undertakings other than those set forth or referred to herein or therein. This
Agreement supersedes all prior agreements and understandings between the Parties
with respect to such subject matter. The Second Registration Rights Agreement,
as in existence prior to the execution hereof, is hereby terminated and is and
shall be after the date hereof null and void and of no further force and effect.
<PAGE>
19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
CANDLEWOOD HOTEL COMPANY, INC.
By: /s/ Jack DeBoer
-------------------
Name: Jack P. DeBoer
Title: Chief Executive Officer
DOUBLETREE CORPORATION
By: /s/ Peter H. Kesser
-----------------------
Name: Peter H. Kesser
Title: Vice President
WARREN D. FIX FAMILY
PARTNERSHIP, L.P.
By: /s/ Warren D. Fix
---------------------
Name: Warren D. Fix
Title: General Partner
/s/ Warren D. Fix
-----------------
Warren D. Fix
JACK P. DeBOER, for himself and on
behalf of the ALEXANDER DeBOER
TRUST DATED MARCH 14, 1995 and the
CHRISTOPHER SCOTT DeBOER TRUST
DATED MARCH 14, 1995
/s/ Jack P. DoBoer
------------------
Name: Jack P. DeBoer
<PAGE>
20
OLYMPUS GROWTH FUND II, L.P.
By: OGP II, L.P., its General Partner
By: RSM, L.L.C., its General Partner
By: /s/ Robert S. Morris
------------------------
Name: Robert S. Morris
Title: Managing Member
OLYMPUS EXECUTIVE FUND, L.P.
By: OEF, L.P., its General Partner
By: RSM, L.L.C., its General Partner
By: /s/ Robert S. Morris
------------------------
Name: Robert S. Morris
Title: Managing Member
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, AS TRUSTEE OF THE
COMMINGLED PENSION TRUST FUND
(MULTI-MARKET SPECIAL INVESTMENT
FUND II) OF MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By: /s/ Kathleen N. Starrs
--------------------------
Name: Kathleen N. Starrs
Title: Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, AS TRUSTEE OF THE
MULTI-MARKET SPECIAL INVESTMENT
TRUST FUND OF MORGAN GUARANTY
TRUST COMPANY OF NEW YORK
By: /s/ Kathleen N. Starrs
--------------------------
Name: Kathleen N. Starrs
Title: Vice President
<PAGE>
21
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, AS INVESTMENT
MANAGER AND AGENT FOR THE
ALFRED P. SLOAN FOUNDATION (MULTI-
MARKET ACCOUNT)
By: /s/ Kathleen N. Starrs
--------------------------
Name: Kathleen N. Starrs
Title: Vice President
CHASE VENTURE CAPITAL
ASSOCIATES, L.P.
By: Chase Capital Partners, its General
Partner
By: /s/ James D. Kallman
------------------------
Name: James D. Kallman
Title: General Partner
PRIVATE EQUITY INVESTORS III, L.P.
By: Rohit M. Desai Associates III, LLC
General Partner
By: /s/ Frank Pados
-------------------
Name: Frank Pados
Title: Attorney-In-Fact
EQUITY-LINKED INVESTORS-II
By: Rohit Desai Associates-II
General Partner
By: /s/ Frank Pados
-------------------
Name: Frank Pados
Title: Attorney-In-Fact
<PAGE>
22
LNR CANDLEWOOD HOLDINGS, INC.
By: /s/ signature illegible
---------------------------
Name:
Title:
DELAWARE STATE EMPLOYEES'
RETIREMENT FUNDS
By: Pecks Management Partners Ltd.,
its Investment Advisor
By: /s/ signature illegible
---------------------------
Name:
Title:
DECLARATION OF TRUST FOR THE
DEFINED BENEFIT PLAN OF ZENECA
HOLDINGS INC.
By: Pecks Management Partners Ltd.,
its Investment Advisor
By: /s/ signature illegible
---------------------------
Name:
Title:
DECLARATION OF TRUST FOR THE
DEFINED BENEFIT PLAN OF ICI
AMERICAN HOLDINGS INC.
By: Pecks Management Partners Ltd.,
its Investment Advisor
By: /s/ signature illegible
---------------------------
Name:
Title:
<PAGE>
23
J.W. McCONNELL FAMILY TRUST
By: Pecks Management Partners Ltd.,
its Investment Advisor
By: /s/ signature illegible
---------------------------
Name:
Title:
ADVANCE CAPITAL PARTNERS, L.P.
By: Advance Capital Associates, L.P.
By: Advance Capital Management, LLC
By: /s/ Robert A. Bernstein
---------------------------
Name: Robert A. Bernstein
Title: Principal
ADVANCE CAPITAL OFFSHORE
PARTNERS, L.P.
By: Advance Capital Offshore Associates,
LDC
By: Advance Capital Associates, L.P.
By: Advance Capital Management, LLC
By: /s/ Robert A. Bernstein
---------------------------
Name: Robert A. Bernstein
Title: Principal
ALLIED CAPITAL CORPORATION
By: /s/ G. Cabell Williams, III
-------------------------------
Name: G. Cabell Williams, III
Title: Managing Director
<PAGE>
24
ALLIED CAPITAL CORPORATION II
By: /s/ G. Cabell Williams, III
-------------------------------
Name: G. Cabell Williams, III
Title: Managing Director
THE FFJ 1997 NOMINEE TRUST
By: /s/ Samuel T. Byrne
-----------------------
Name: Samuel T. Byrne
Title: Trustee
THE MUTUAL LIFE INSURANCE
COMPANY OF NEW YORK
By: /s/ Suzanne E. Walton
-------------------------
Name: Suzanne E. Walton
Title: Managing Director
J. ROMEO & CO.
By: /s/ Peter Coccia
--------------------
Name: Peter Coccia
Title: Partner
HARBOR INVESTMENTS LTD.
By: Strong Capital Management, Inc.,
its Investment Advisor
By: /s/ Stephen J. Shenkenberg
------------------------------
Name: Stephen J. Shenkenberg
Title: Vice President & Acting
General Counsel
<PAGE>
25
STRONG SPECIAL INVESTMENT LIMITED
PARTNERSHIP
By: Strong Capital Management,. Inc., its
General Partner
By: /s/ Stephen J. Shenkenberg
------------------------------
Name: Stephen J. Shenkenberg
Title: Vice President & Acting
General Counsel
STRONG QUEST LIMITED PARTNERSHIP
By: Strong Capital Management,. Inc., its
General Partner
By: /s/ Stephen J. Shenkenberg
------------------------------
Name: Stephen J. Shenkenberg
Title: Vice President & Acting
General Counsel
/s/ William J. Abrams
---------------------
William J. Abrams
/s/ Joseph P. Adams, Jr.
------------------------
Joseph P. Adams, Jr.
/s/ Eric Anderson
-----------------
Eric Anderson
/s/ Robert P. Brennan, Jr.
--------------------------
Robert P. Brennan, Jr.
/s/ Robert Brody
----------------
Robert Brody
<PAGE>
26
/s/ Vanessa Burgess
-------------------
Vanessa Burgess
/s/ Craig Callen
----------------
Craig Callen
/s/ Michael Dana
----------------
Michael Dana
/s/ Peter Deeks
---------------
Peter Deeks
/s/ Robert E. Diemar, Jr.
-------------------------
Robert E. Diemar, Jr.
/s/ David Hurwitz
-----------------
David Hurwitz
/s/ Steve Kantor
----------------
Steve Kantor
/s/ Louis Klevan
----------------
Louis Klevan
/s/ Larry Lavine
----------------
Larry Lavine
/s/ Daniel J. Mackell
---------------------
Daniel J. Mackell
/s/ Patrick McMullan
--------------------
Patrick McMullan
<PAGE>
27
/s/ Andrew J. McSpadden
-----------------------
Andrew J. McSpadden
/s/ David R. Smith
------------------
David R. Smith
/s/ Phil Tager
--------------
Phil Tager
/s/ Douglas M. Weill
--------------------
Douglas M. Weill
/s/ Charles Ruck
----------------
Charles Ruck
